Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change Relating to the Adoption of Listing Standards for Certain Securities, 6833-6850 [2012-2994]
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Federal Register / Vol. 77, No. 27 / Thursday, February 9, 2012 / Notices
believes that the proposed rule change
reflects this competitive environment
because it will reduce fees paid by
active market participants, without
removing any of the market’s existing
pricing incentives.
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, as amended.
Because the market for order execution
is extremely competitive, members may
readily opt to disfavor NASDAQ’s
execution services if they believe that
alternatives offer them better value. The
proposed changes will enhance
competition by reducing certain of
NASDAQ’s fees. Notably, the proposed
pricing tiers for Tape B Securities will
enhance NASDAQ’s ability to compete
with NYSEArca, which currently offers
reduced fees to access liquidity in Tape
B Securities.13 Similarly, the change to
the PMI Program will enhance
competition with the EDGX Exchange,
which encourages participation in its
pre-market and post-market trading
sessions by means of favorable pricing
offered to members that are active
during pre-market and/or post-market
hours.14
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.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act 15 and
subparagraph (f)(2) of Rule 19b–4
thereunder.16 At any time within 60
days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
13 https://usequities.nyx.com/markets/nyse-arcaequities/trading-fees.
14 https://www.directedge.com/Membership/Fee
Schedule/EDGXFeeSchedule.aspx.
15 15 U.S.C. 78s(b)(3)(A)(ii).
16 17 CFR 240.19b–4(f)(2).
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to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2012–020 on the
subject line.
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2012–020. This
file number should be included on the
subject line if email 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 Web site viewing and
printing 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–2012–020 and should be
submitted on or before March 1, 2012.
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CFR 200.30–3(a)(12).
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–3000 Filed 2–8–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66320; File No. SR–
NASDAQ–2012–013]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Proposed Rule Change
Relating to the Adoption of Listing
Standards for Certain Securities
February 3, 2012.
Paper Comments
17 17
6833
Sfmt 4703
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 January
20, 2012, The NASDAQ Stock Market
LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt rules
applicable to the qualification, listing,
trading, and delisting of certain
securities on NASDAQ (‘‘Listing
Rules’’). Specifically, NASDAQ
proposes to adopt Listing Rules
applicable to the following securities:
Equity Index-Linked Securities,
Commodity-Linked Securities,3 Fixed
Income Index-Linked Securities,
Futures-Linked Securities, Multifactor
Index-Linked Securities; Index-Linked
Exchangeable Notes; Equity Gold
Shares; Trust Certificates; CommodityBased Trust Shares; Currency Trust
Shares; Commodity Index Trust Shares;
Commodity Futures Trust Shares;
Partnership Units; Trust Units; Managed
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 NASDAQ Rules 5710(g) and (h) currently
include initial listing standards applicable to Equity
Index-Linked Securities and Commodity-Linked
Securities. NASDAQ proposes to re-number the
existing rule text in Rules 5710(g) and (h), and to
adopt continuing listing standards applicable to
Equity Index-Linked Securities and CommodityLinked Securities, in proposed Rules 5710(k)(i) and
(ii).
2 17
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Federal Register / Vol. 77, No. 27 / Thursday, February 9, 2012 / Notices
Trust Securities; and Currency
Warrants.
The proposal would adopt listing
standards based on the relevant listing
standards of the NYSE Arca, Inc.
(‘‘NYSEArca’’) Equities Rules, as set
forth below. The text of the proposed
rule change is available on the
Exchange’s Web site at https://
www.nasdaq.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this proposed rule
change is to adopt listing standards for
each of the products specified above.
The Section 5000 series of the NASDAQ
rules govern the qualification, listing
and delisting of securities on the
NASDAQ Stock Market. Section 5000
also sets forth, among other things,
definitions,4 NASDAQ’s regulatory
authority to list and maintain
securities,5 general procedures and
prerequisites for initial and continued
listing on the NASDAQ Stock Market,6
and, most significantly to the instant
proposed rule change, ‘‘Other
Securities,’’ 7 which govern, without
limitation, listing and qualification rules
applicable to Exchange Traded Funds,
Portfolio Depository Receipts and Index
Fund Shares. The proposed
amendments to Rule 5710, Securities
Linked to the Performance of Indexes
and Commodities (Including
Currencies), would add continuing
listing standards for Equity IndexLinked Securities and CommodityLinked Securities, and initial and
continuing listing standards for fixed
4 See
Section 5005 of the NASDAQ Rules.
Section 5100 of the NASDAQ Rules.
6 See Section 5200 of the NASDAQ Rules.
7 See Section 5700 of the NASDAQ Rules.
5 See
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income index-linked securities (‘‘Fixed
Income Index-Linked Securities’’),
futures-linked securities (‘‘FuturesLinked Securities’’) and multifactor
index-linked securities (‘‘Multifactor
Index-Linked Securities’’ and, together
with Equity Index-Linked Securities,
Commodity-Linked Securities, Fixed
Income Index-Linked Securities and
Futures-Linked Securities, ‘‘Linked
Securities’’) to the rule.
Proposed new Rule 5711, Trading of
Certain Derivative Securities, would
include listing standards for IndexLinked Exchangeable Notes, Equity
Gold Shares, Trust Certificates,
Commodity-Based Trust Shares,
Currency Trust Shares, Commodity
Index Trust Shares, Commodity Futures
Trust Shares, Partnership Units, Trust
Units, Managed Trust Securities, and
Currency Warrants.
The instant proposed rule change is
intended to define the specific products
(see above) that NASDAQ intends to list
and trade, and the listing and
qualification requirements for each such
product.
Introductory Paragraphs to Rule 5710
The proposed amendments to Rule
5710 would state that NASDAQ will
consider for listing and trading the
Linked Securities set forth in the
introductory paragraphs of the rule.
These paragraphs describe the basis for
the payment at maturity of the various
securities, which is the performance of
‘‘Reference Assets,’’ as defined below.
Specifically:
• Equity Index-Linked Securities are
securities that provide for the payment
at maturity of a cash amount based on
the performance of an underlying equity
index or indexes (‘‘Equity Reference
Asset’’).
• The payment at maturity with
respect to Commodity-Linked Securities
is based on one or more physical
Commodities or Commodity futures,
options or other Commodity derivatives,
Commodity-Related Securities, or a
basket or index of any of the foregoing
(‘‘Commodity Reference Asset’’). The
terms ‘‘Commodity’’ and ‘‘CommodityRelated Security’’ are defined in Rule
4630.
• The payment at maturity with
respect to Fixed Income Index-Linked
Securities is based on the performance
of one or more indexes or portfolios of
notes, bonds, debentures or evidence of
indebtedness that include, but are not
limited to, U.S. Department of the
Treasury securities (‘‘Treasury
Securities’’), government-sponsored
entity securities (‘‘GSE Securities’’),
municipal securities, trust preferred
securities, supranational debt and debt
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of a foreign country or a subdivision
thereof or a basket or index of any of the
foregoing (‘‘Fixed Income Reference
Asset’’).
• The payment at maturity with
respect to Futures-Linked Securities is
based on the performance of an index of
(a) futures on Treasury Securities, GSE
Securities, supranational debt and debt
of a foreign country or a subdivision
thereof, or options or other derivatives
on any of the foregoing; or (b) interest
rate futures or options or derivatives on
the foregoing in this subparagraph (b);
or (c) CBOE Volatility Index (VIX)
Futures (‘‘Futures Reference Asset’’).
• The payment at maturity with
respect to Multifactor Index-Linked
Securities is based on the performance
of any combination of two or more
Equity Reference Assets, Commodity
Reference Assets, Fixed Income
Reference Assets or Futures Reference
Assets (‘‘Multifactor Reference Asset,’’
and together with Equity Reference
Assets, Commodity Reference Assets,
Fixed Income Reference Assets and
Futures Reference Assets, ‘‘Reference
Assets’’). A Multifactor Reference Asset
may include as a component a notional
investment in cash or a cash equivalent
based on a widely accepted overnight
loan interest rate, LIBOR, Prime Rate, or
an implied interest rate based on
observed market spot and foreign
currency forward rates.
Linked Securities may or may not
provide for the repayment of the
original principal investment amount.
NASDAQ may submit a rule filing
pursuant to Section 19(b)(2) of the Act
to permit the listing and trading of
Linked Securities that do not otherwise
meet the standards set forth in Rule
5710.
Technical Changes to Rule 5710
NASDAQ is not proposing any
amendments to Rules 5710(a)–(f), and
such provisions would apply to all
Linked Securities.8 Additionally,
8 Current
Rules 5710(a)–(f) state:
(a) Both the issue and the issuer of such security
meet the criteria for other securities set forth in
Rule 5730(a), except that if the security is traded in
$1,000 denominations or is redeemable at the
option of holders thereof on at least a weekly basis,
then no minimum number of holders and no
minimum public distribution of trading units shall
be required.
(b) The issue has a term of not less than one (1)
year and not greater than thirty (30) years.
(c) The issue must be the non-convertible debt of
the Company.
(d) The payment at maturity may or may not
provide for a multiple of the direct or inverse
performance of an underlying index, indexes or
Reference Asset; however, in no event will a loss
(negative payment) at maturity be accelerated by a
multiple that exceeds twice the performance of an
underlying index, indexes or Reference Asset.
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Federal Register / Vol. 77, No. 27 / Thursday, February 9, 2012 / Notices
NASDAQ proposes to re-number the
current text of Rule 5710 by deleting
current Rules 5710(g) and (h) and
moving the text of these two sections
into proposed Rules 5710 (k)(i) and (ii).9
In addition, NASDAQ is proposing to
re-number the remaining existing
sections of Rule 5710, and to amend
references and defined terms in such
sections such that they would apply to
all Linked Securities.
Linked Securities
Proposed Rule 5710(k) would adopt
listing standards for the various Linked
Securities.
Equity Index-Linked Securities
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Initial Listing Criteria
Proposed Rule 5710(k)(i)(A) would set
forth the initial listing criteria for Equity
Index-Linked Securities found in
current Rule 5710(g), which would be
deleted and replaced in proposed Rule
5710(k)(i)(A). Specifically:
In the case of an Equity Index-Linked
Security, each underlying index is
required to have at least ten (10)
component securities. In addition, the
index or indexes to which the security
is linked shall either: (1) Have been
reviewed and approved for the trading
of options or other derivatives by the
Commission under Section 19(b)(2) of
the Act and rules thereunder, and the
conditions set forth in the Commission’s
approval order, including
comprehensive surveillance sharing
agreements for non-U.S. stocks,
continue to be satisfied, or (2) the index
or indexes meet the following criteria:
• Each component security has a
minimum market value of at least $75
million, except that for each of the
lowest weighted component securities
in the index that in the aggregate
account for no more than 10% of the
weight of the index, the market value
can be at least $50 million;
• Each component security shall have
trading volume in each of the last six
months of not less than 1,000,000
shares, except that for each of the lowest
weighted component securities in the
(e) The Company will be expected to have a
minimum tangible net worth in excess of
$250,000,000 and to exceed by at least 20% the
earnings requirements set forth in Rule
5405(b)(1)(A). In the alternative, the Company will
be expected: (i) To have a minimum tangible net
worth of $150,000,000 and to exceed by at least
20% the earnings requirement set forth in Rule
5405(b)(1)(A), and (ii) not to have issued securities
where the original issue price of all the Company’s
other index-linked note offerings (combined with
index-linked note offerings of the Company’s
affiliates) listed on a national securities exchange
exceeds 25% of the Company’s net worth.
(f) The Company is in compliance with Rule
10A–3 under the Act.
9 See supra note 3.
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index that in the aggregate account for
no more than 10% of the weight of the
index, the trading volume shall be at
least 500,000 shares in each of the last
six months;
• Indexes based upon the equal-dollar
or modified equal-dollar weighting
method will be rebalanced at least
semiannually;
• In the case of a capitalizationweighted or modified capitalizationweighted index, the lesser of the five
highest weighted component securities
in the index or the highest weighted
component securities in the index that
in the aggregate represent at least 30%
of the total number of component
securities in the index, each have an
average monthly trading volume of at
least 2,000,000 shares over the previous
six months;
• No underlying component security
will represent more than 25% of the
weight of the index, and the five highest
weighted component securities in the
index do not in the aggregate account
for more than 50% of the weight of the
index (60% for an index consisting of
fewer than 25 component securities);
• 90% of the index’s numerical value
and at least 80% of the total number of
component securities will meet the then
current criteria for standardized option
trading on a national securities
exchange or a national securities
association, provided, however, that an
index will not be subject to this
requirement if (a) no underlying
component security represents more
than 10% of the dollar weight of the
index and (b) the index has a minimum
of 20 components; and
• All component securities shall be
either (A) securities (other than
securities of a foreign issuer and
American Depository Receipts
(‘‘ADRs’’)) that are (i) issued by a 1934
Act reporting company or by an
investment company registered under
the Investment Company Act of 1940
that, in each case, has securities listed
on a national securities exchange and
(ii) an ‘‘NMS stock’’ (as defined in Rule
600 of Regulation NMS under the Act),
or (B) securities of a foreign issuer or
ADRs, provided that securities of a
foreign issuer (including when they
underlie ADRs) whose primary trading
market outside the United States is not
a member of the Intermarket
Surveillance Group (‘‘ISG’’) or a party to
a comprehensive surveillance sharing
agreement with NASDAQ will not in the
aggregate represent more than 20% of
the dollar weight of the index.
Continued Listing Criteria
Rule 5710(k)(i)(B) would adopt
continued listing criteria for Equity
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6835
Index-Linked Securities. Specifically,
NASDAQ will commence delisting or
removal proceedings (unless the
Commission has approved the
continued trading of the subject Equity
Index-Linked Security), if any of the
standards set forth above are not
continuously maintained, except that:
• The criteria that no single
component represent more than 25% of
the dollar weight of the index and the
five highest dollar weighted
components in the index cannot
represent more than 50% (or 60% for
indexes with less than 25 components)
of the dollar weight of the index, need
only be satisfied at the time the index
is rebalanced; and
• Component stocks that in the
aggregate account for at least 90% of the
weight of the index each shall have a
minimum global monthly trading
volume of 500,000 shares, or minimum
global notional volume traded per
month of $12,500,000, averaged over the
last six months.
In connection with an Equity IndexLinked Security that is based on an
index that has been reviewed and
approved for the trading of options or
other derivatives by the Commission
under Section 19(b)(2) of the Act and
rules thereunder and the conditions set
forth in the Commission’s approval
order, NASDAQ will commence
delisting or removal proceedings (unless
the Commission has approved the
continued trading of the subject Equity
Index-Linked Security) if an underlying
index or indexes fails to satisfy the
maintenance standards or conditions for
such index or indexes as set forth by the
Commission in its order under Section
19(b)(2) of the Act approving the index
or indexes for the trading of options or
other derivatives.
Additionally, NASDAQ will
commence delisting or removal
proceedings (unless the Commission has
approved the continued trading of the
subject Equity Index-Linked Security),
under any of the following
circumstances:
• If the aggregate market value or the
principal amount of the Equity IndexLinked Securities publicly held is less
than $400,000;
• If the value of the index or
composite value of the indexes is no
longer calculated or widely
disseminated on at least a 15-second
basis with respect to indexes containing
only securities listed on a national
securities exchange, or on at least a 60second basis with respect to indexes
containing foreign country securities,
provided, however, that, if the official
index value does not change during
some or all of the period when trading
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is occurring on NASDAQ (for example,
for indexes of foreign country securities,
because of time zone differences or
holidays in the countries where such
indexes’ component stocks trade) then
the last calculated official index value
must remain available throughout
NASDAQ trading hours; or
• If such other event shall occur or
condition exists which in the opinion of
NASDAQ makes further dealings on
NASDAQ inadvisable.
Equity-Linked Indexes will be
rebalanced at least annually.
The proposed rule change relating to
Equity-Linked Securities is based on
NYSEArca Equities Rule 5.2(j)(6)(B)(I).
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Commodity-Linked Securities
Proposed Rule 5710(k)(ii) would
adopt the initial listing criteria (found in
current Rule 5710(h), which would be
deleted and replaced in proposed Rule
5710(k)(ii)(A)) and continued listing
criteria for Commodity-Linked
Securities.
Initial Listing Criteria
The Reference Asset must meet one of
the following criteria:
• The Reference Asset to which the
security is linked shall have been
reviewed and approved for the trading
of Commodity-Related Securities or
options or other derivatives by the
Commission under Section 19(b)(2) of
the Act and rules thereunder and the
conditions set forth in the Commission’s
approval order, including with respect
to comprehensive surveillance sharing
agreements, continue to be satisfied; or
• The pricing information for each
component of a Reference Asset other
than a Currency must be derived from
a market which is an ISG member or
affiliate or with which NASDAQ has a
comprehensive surveillance sharing
agreement. Notwithstanding the
previous sentence, pricing information
for gold and silver may be derived from
the London Bullion Market Association.
The pricing information for each
component of a Reference Asset that is
a Currency must be either: (1) The
generally accepted spot price for the
currency exchange rate in question; or
(2) derived from a market of which (a)
is an ISG member or affiliate or with
which NASDAQ has a comprehensive
surveillance sharing agreement and (b)
is the pricing source for a currency
component of a Reference Asset that has
previously been approved by the
Commission. A Reference Asset may
include components representing not
more than 10% of the dollar weight of
such Reference Asset for which the
pricing information is derived from
markets that do not meet the
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requirements of subparagraph (2) of the
proposed rule; provided, however, that
no single component subject to this
exception exceeds 7% of the dollar
weight of the Reference Asset. The term
‘‘Currency,’’ as used in the proposed
rule, means one or more currencies, or
currency options, futures, or other
currency derivatives, CommodityRelated Securities if their underlying
Commodities are currencies or currency
derivatives, or a basket or index of any
of the foregoing.
Continued Listing Standards
Proposed Rule 5710(k)(ii)(B) would
establish continued listing criteria for
Commodity-Linked Securities.
Specifically, NASDAQ will commence
delisting or removal proceedings if any
of the initial listing criteria described
above are not continuously maintained.
Additionally, NASDAQ will also
commence delisting or removal
proceedings under any of the following
circumstances:
• If the aggregate market value or the
principal amount of the CommodityLinked Securities publicly held is less
than $400,000;
• If the value of the Commodity
Reference Asset is no longer calculated
or available and a new Commodity
Reference Asset is substituted, unless
the new Commodity Reference Asset
meets the requirements of the proposed
rule; or
• If such other event shall occur or
condition exists which in the opinion of
NASDAQ makes further dealings on
NASDAQ inadvisable.
The proposed rule change relating to
Commodity-Linked Securities is based
on NYSEArca Equities Rule
5.2(j)(6)(B)(II).
Fixed Income Index-Linked Securities
Proposed Rule 5710(k)(iii) would set
forth the listing criteria for Fixed
Income Index-Linked Securities.
Initial Listing Standards
Proposed Rule 5710(k)(iii)(A) states
that either the Fixed Income Reference
Asset to which the security is linked
shall have been reviewed and approved
for the trading of options, Index Fund
Shares, or other derivatives by the
Commission under Section 19(b)(2) of
the Securities Exchange Act of 1934 and
rules thereunder and the conditions set
forth in the Commission’s approval
order continue to be satisfied or the
issue must meet the following initial
listing criteria:
• Components of the Fixed Income
Reference Asset that in the aggregate
account for at least 75% of the weight
of the Fixed Income Reference Asset
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must each have a minimum original
principal amount outstanding of $100
million or more;
• A component of the Fixed Income
Reference Asset may be a convertible
security, however, once the convertible
security component converts to the
underlying equity security, the
component is removed from the Fixed
Income Reference Asset;
• No component of the Fixed Income
Reference Asset (excluding Treasury
Securities and GSE Securities) will
represent more than 30% of the dollar
weight of the Fixed Income Reference
Asset, and the five highest dollar
weighted components in the Fixed
Income Reference Asset will not in the
aggregate account for more than 65% of
the dollar weight of the Fixed Income
Reference Asset;
• An underlying Fixed Income
Reference Asset (excluding one
consisting entirely of exempted
securities) must include a minimum of
13 non-affiliated issuers; and
• Component securities that in the
aggregate account for at least 90% of the
dollar weight of the Fixed Income
Reference Asset must be from one of the
following: (a) Issuers that are required to
file reports pursuant to Sections 13 and
15(d) of the Act; or (b) issuers that have
a worldwide market value of
outstanding common equity held by
non-affiliates of $700 million or more;
or (c) issuers that have outstanding
securities that are notes, bonds,
debentures, or evidence of indebtedness
having a total remaining principal
amount of at least $1 billion; or (d)
exempted securities as defined in
Section 3(a)(12) of the Act, or (e) issuers
that are a government of a foreign
country or a political subdivision of a
foreign country.
In addition, the value of the Fixed
Income Reference Asset must be widely
disseminated to the public by one or
more major market vendors at least once
per business day.
Continued Listing Standards
Proposed Rule 5710(k)(iii)(C) would
provide that NASDAQ will commence
delisting or removal proceedings if any
of the initial listing criteria described
above are not continuously maintained,
and that NASDAQ will also commence
delisting or removal proceedings:
• If the aggregate market value or the
principal amount of the Fixed Income
Index-Linked Securities publicly held is
less than $400,000;
• If the value of the Fixed Income
Reference Asset is no longer calculated
or available and a new Fixed Income
Reference Asset is substituted, unless
the new Fixed Income Reference Asset
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meets the requirements of proposed
Rule 5710(k); or
• If such other event shall occur or
condition exists which in the opinion of
NASDAQ makes further dealings
inadvisable.
The proposed rule change relating to
Fixed-Income Linked Securities is based
on NYSEArca Equities Rule
5.2(j)(6)(B)(IV).
Futures-Linked Securities
Proposed Rule 5710(k)(iv) would
establish listing standards for FuturesLinked Securities.
mstockstill on DSK4VPTVN1PROD with NOTICES
Initial Listing Standards
Proposed Rule 5710(k)(iv)(A) states
that the issue must meet either of the
following the initial listing standards:
• The Futures Reference Asset to
which the security is linked shall have
been reviewed and approved for the
trading of Futures-Linked Securities or
options or other derivatives by the
Commission under Section 19(b)(2) of
the Act and rules thereunder and the
conditions set forth in the Commission’s
approval order, including with respect
to comprehensive surveillance sharing
agreements, continue to be satisfied, or
• The pricing information for
components of a Futures Reference
Asset must be derived from a market
which is an ISG member or affiliate or
with which NASDAQ has a
comprehensive surveillance sharing
agreement. A Futures Reference Asset
may include components representing
not more than 10% of the dollar weight
of such Futures Reference Asset for
which the pricing information is
derived from markets that do not meet
the requirements of proposed Rule
5710(k)(iv)(A)(2); provided, however,
that no single component subject to this
exception exceeds 7% of the dollar
weight of the Futures Reference Asset.
In addition, the issue must meet both
of the following initial listing criteria:
• The value of the Futures Reference
Asset must be calculated and widely
disseminated by one or more major
market data vendors on at least a 15second basis during the Regular Market
Session, as defined in Rule 4120; and
• In the case of Futures-Linked
Securities that are periodically
redeemable, the value of a share of each
series (‘‘Intraday Indicative Value’’) of
the subject Futures-Linked Securities
must be calculated and widely
disseminated by NASDAQ or one or
more major market data vendors on at
least a 15-second basis during the
Regular Market Session (as defined in
Rule 4120).
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Continued Listing Standards
Proposed Rule 5710(k)(iv)(C) states
that NASDAQ will commence delisting
or removal proceedings if any of the
initial listing criteria described above
are not continuously maintained, and
that NASDAQ will also commence
delisting or removal proceedings under
any of the following circumstances:
• If the aggregate market value or the
principal amount of the Futures-Linked
Securities publicly held is less than
$400,000;
• If the value of the Futures Reference
Asset is no longer calculated or
available and a new Futures Reference
Asset is substituted, unless the new
Futures Reference Asset meets the
requirements of proposed Rule 5710(k);
or
• If such other event shall occur or
condition exists which in the opinion of
NASDAQ makes further dealings on
NASDAQ inadvisable.
The proposed rule change relating to
Futures-Linked Securities is based on
NYSEArca Equities Rule 5.2(j)(6)(B)(V).
Multifactor Index-Linked Securities
Proposed Rule 5710(k)(v) would
govern the listing standards for
Multifactor Index-Linked Securities.
Initial Listing Standards
Proposed Rule 5710(k)(v)(A) states
that the issue must meet one of the
following initial listing standards:
• Each component of the Multifactor
Reference Asset to which the security is
linked shall have been reviewed and
approved for the trading of either
options, Index Fund Shares, or other
derivatives under Section 19(b)(2) of the
Act and rules thereunder and the
conditions set forth in the Commission’s
approval order continue to be satisfied;
or
• Each Reference Asset included in
the Multifactor Reference Asset must
meet the applicable initial and
continued listing criteria set forth in the
relevant subsection of proposed Rule
5710(k).
In addition to one of the initial listing
standards set forth above, proposed Rule
5710(k)(v)(B) would state that the issue
must meet both of the following initial
listing criteria:
• The value of the Multifactor
Reference Asset must be calculated and
widely disseminated to the public on at
least a 15-second basis during the time
the Multifactor Index-Linked Security
trades on NASDAQ; and
• In the case of Multifactor IndexLinked Securities that are periodically
redeemable, the indicative value of the
Multifactor Index-Linked Securities
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6837
must be calculated and widely
disseminated by one or more major
market data vendors on at least a 15second basis during the time the
Multifactor Index-Linked Securities
trade on NASDAQ.
Continued Listing Criteria
Proposed Rule 5710(k)(v)(C) states
that NASDAQ will commence delisting
or removal proceedings:
• If any of the initial listing criteria
described above are not continuously
maintained;
• If the aggregate market value or the
principal amount of the Multifactor
Index-Linked Securities publicly held is
less than $400,000;
• If the value of the Multifactor
Reference Asset is no longer calculated
or available and a new Multifactor
Reference Asset is substituted, unless
the new Multifactor Reference Asset
meets the requirements of proposed
Rule 5710(k); or
• If such other event shall occur or
condition exists which in the opinion of
NASDAQ makes further dealings on
NASDAQ inadvisable.
The proposed rule change relating to
Multifactor Index-Linked Securities is
based on NYSEArca Equities Rule
5.2(j)(6)(B)(VI).
Regulatory Requirements for Registered
Market Makers in Linked Securities
Commentary .01 to proposed Rule
5710(k) would establish certain
regulatory requirements for registered
Market Makers in Linked Securities.
Specifically, the registered Market
Maker in Linked Securities must file
with NASDAQ, in a manner prescribed
by NASDAQ, and keep current a list
identifying all accounts for trading in
the Reference Asset components, the
commodities, currencies or futures
underlying the Reference Asset
components, or any derivative
instruments based on the Reference
Asset or based on any Reference Asset
component or any physical commodity,
currency or futures underlying a
Reference Asset component, which the
registered Market Maker may have or
over which it may exercise investment
discretion. No registered Market Maker
in Linked Securities would be permitted
to trade in the Reference Asset
components, the commodities,
currencies or futures underlying the
Reference Asset components, or any
derivative instruments based on the
Reference Asset or based on any
Reference Asset component or any
physical commodity, or futures
currency underlying a Reference Asset
component, in an account in which a
registered Market Maker, directly or
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indirectly, controls trading activities, or
has a direct interest in the profits or
losses thereof, which has not been
reported to NASDAQ as required by the
proposed Rule.
In addition to the existing obligations
under NASDAQ rules regarding the
production of books and records,10 the
registered Market Maker in Linked
Securities would be required to make
available to NASDAQ such books,
records or other information pertaining
to transactions by such entity or any
limited partner, officer or approved
person thereof, registered or
nonregistered employee affiliated with
such entity for its or their own accounts
in the Reference Asset components, the
commodities, currencies or futures
underlying the Reference Asset
components, or any derivative
instruments based on the Reference
Asset or based on any Reference Asset
component or any physical commodity,
currency or futures underlying a
Reference Asset component, as may be
requested by NASDAQ.
The proposed rule change relating to
regulatory requirements for registered
Market Makers in Linked Securities is
based on NYSEArca Equities Rule
5.2(j)(6), Commentary .01.
Proposed Rule 5711—Trading of Certain
Derivative Securities
NASDAQ proposes to adopt new Rule
5711, Trading of Certain Derivative
Securities, which would set forth listing
standards for the securities described
below.
mstockstill on DSK4VPTVN1PROD with NOTICES
Index-Linked Exchangeable Notes
Proposed Rule 5711(a) would adopt
listing standards for Index-Linked
Exchangeable Notes.
Description
Index-Linked Exchangeable Notes are
exchangeable debt securities that are
exchangeable at the option of the holder
(subject to the requirement that the
holder in most circumstances exchange
a specified minimum amount of notes),
on call by the issuer, or at maturity for
a cash amount (‘‘Cash Value Amount’’)
based on the reported market prices of
the underlying stocks of an underlying
index. Each Index-Linked Exchangeable
Note is intended to provide investors
with an instrument that closely tracks
the underlying index. Notwithstanding
that the notes are linked to an index,
they will trade as a single security.
Initial Listing Standards
Index-Linked Exchangeable Notes
will be considered for listing and
10 See,
e.g., NASDAQ Rule 4625.
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trading by NASDAQ pursuant to Rule
19b–4(e) under the Act,11 provided:
• Both the issue and the issuer of
such security meet the requirements of
Rule 5730, Listing Requirements for
Securities Not Specified Above (Other
Securities), except that the minimum
public distribution shall be 150,000
notes with a minimum of 400 public
note-holders, except, if traded in
thousand dollar denominations or
redeemable at the option of the holders
thereof on at least a weekly basis, then
no minimum public distribution and no
minimum number of holders.
• The issue has a minimum term of
one year.
• The issuer will be expected to have
a minimum tangible net worth in excess
of $250,000,000, and to otherwise
substantially exceed the earnings
requirements set forth in Rule 5405(b).
In the alternative, the issuer will be
expected: (A) to have a minimum
tangible net worth of $150,000,000 and
to otherwise substantially exceed the
earnings requirements set forth in Rule
5405(b); and (B) not to have issued
Index-Linked Exchangeable Notes
where the original issue price of all the
issuer’s other Index-Linked
Exchangeable Note offerings (combined
with other index-linked exchangeable
note offerings of the issuer’s affiliates)
listed on a national securities exchange
exceeds 25% of the issuer’s net worth.
• The index to which an
exchangeable-note is linked shall either
be (A) indices that have been created by
a third party and been reviewed and
have been approved for the trading of
options or other derivatives securities
(‘‘Third-Party Index’’) either by the
Commission under Section 19(b)(2) of
the Act and rules thereunder or by
NASDAQ under rules adopted pursuant
to Rule 19b–4(e); or (B) indices which
the issuer has created and for which
NASDAQ will have obtained approval
from either the Commission pursuant to
Section 19(b)(2) and rules thereunder or
from NASDAQ under rules adopted
pursuant to Rule 19b–4(e) (‘‘Issuer
Index’’). The Issuer Indices and their
underlying securities must meet one of
the following: (A) The procedures and
criteria set forth in NOM Rules, Chapter
XIV, Section 6(b) and (c), or (B) the
criteria set forth in Rules 5715(b)(3) and
(4), the index concentration limits set
forth in NOM Rule Chapter XIV, Section
6, and NOM Rule Chapter XIV, Section
6(b)(12) insofar as it relates to NOM
Rule Chapter XIV, Section 6(b)(6).
Index-Linked Exchangeable Notes will
be treated as equity instruments.
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Continued Listing Standards
Beginning twelve months after the
initial issuance of a series of IndexLinked Exchangeable Notes, NASDAQ
will consider the suspension of trading
in or removal from listing of that series
of Index-Linked Exchangeable Notes
under any of the following
circumstances:
• If the series has fewer than 50,000
notes issued and outstanding;
• If the market value of all IndexLinked Exchangeable Notes of that
series issued and outstanding is less
than $1,000,000; or
• If such other event shall occur or
such other condition exists which in the
opinion of NASDAQ makes further
dealings of NASDAQ inadvisable.
The proposed rule change relating to
Index-Linked Exchangeable Notes is
based on NYSEArca Equities Rule
5.2(j)(4).
Equity Gold Shares
Description
Proposed Rule 5711(b) would apply to
Equity Gold Shares that represent units
of fractional undivided beneficial
interest in, and ownership of, the Equity
Gold Trust. While Equity Gold Shares
are not technically ‘‘Index Fund
Shares,’’ and thus are not covered by
NASDAQ Rule 5705, all other NASDAQ
rules that reference ‘‘Index Fund
Shares’’ shall also apply to Equity Gold
Shares.
Applicability
Except to the extent that specific
provisions in proposed Rule 5711(b)
govern, or unless the context otherwise
requires, the provisions of all other
NASDAQ Rules and policies would be
applicable to the trading of Equity Gold
Shares on NASDAQ. The provisions set
forth in proposed Rule 5711(d) relating
to Commodity-Based Trust Shares
would also apply to Equity Gold Shares.
The proposed rule change relating to
Equity Gold Shares is based on
NYSEArca Equities Rule 5.2(j)(5).
Trust Certificates
Proposed Rule 5711(c) would govern
the listing standards applicable to Trust
Certificates. NASDAQ will consider for
trading, whether by listing or pursuant
to unlisted trading privileges, Trust
Certificates.
Description
Trust Certificates represent an interest
in a special purpose trust (‘‘Trust’’)
created pursuant to a trust agreement.
The Trust will only issue Trust
Certificates. Trust Certificates may or
may not provide for the repayment of
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the original principal investment
amount. Trust Certificates pay an
amount at maturity which is based upon
the performance of specified assets as
set forth below:
• An underlying index or indexes of
equity securities (‘‘Equity Reference
Asset’’);
• Instruments that are direct
obligations of the issuing company,
either exercisable throughout their life
(i.e., American style) or exercisable only
on their expiration date (i.e., European
style), entitling the holder to a cash
settlement in U.S. dollars to the extent
that the foreign or domestic index has
declined below (for a put warrant) or
increased above (for a call warrant) the
pre-stated cash settlement value of the
index (‘‘Index Warrants’’); or
• A combination of two or more
Equity Reference Assets or Index
Warrants.
NASDAQ will file separate proposals
under Section 19(b) of the Act before
trading, either by listing or pursuant to
unlisted trading privileges, Trust
Certificates.
mstockstill on DSK4VPTVN1PROD with NOTICES
Continued Listing Standards
Commentary .01 to proposed Rule
5711(c) would state that NASDAQ will
commence delisting or removal
proceedings with respect to an issue of
Trust Certificates (unless the
Commission has approved the
continued trading of such issue), under
any of the following circumstances:
• If the aggregate market value or the
principal amount of the securities
publicly held is less than $400,000;
• If the value of the index or
composite value of the indexes is no
longer calculated or widely
disseminated on at least a 15-second
basis with respect to indexes containing
only securities listed on a national
securities exchange, or on at least a 60second basis with respect to indexes
containing foreign country securities;
provided, however, that, if the official
index value does not change during
some or all of the period when trading
is occurring on the NASDAQ Stock
Market (for example, for indexes of
foreign country securities, because of
time zone differences or holidays in the
countries where such indexes’
component stocks trade) then the last
calculated official index value must
remain available throughout NASDAQ
trading hours; or
• If such other event shall occur or
condition exists which in the opinion of
NASDAQ makes further dealings on
NASDAQ inadvisable.
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Other Provisions
Proposed Commentary .02 to Rule
5711(c) would provide that the stated
term of the Trust shall be as stated in
the Trust prospectus. However, a Trust
may be terminated under such earlier
circumstances as may be specified in
the Trust prospectus.
Proposed Commentary .03 to Rule
5711(c) would provide that the trustee
of a Trust must be a trust company or
banking institution having substantial
capital and surplus and the experience
and facilities for handling corporate
trust business. In cases where, for any
reason, an individual has been
appointed as trustee, a qualified trust
company or banking institution must be
appointed co-trustee. No change is to be
made in the trustee of a listed issue
without prior notice to and approval of
NASDAQ.
Proposed Commentary .04 to Rule
5711(c) would provide that voting rights
will be as set forth in the applicable
Trust prospectus.
Proposed Commentary .05 to Rule
5711(c) would provide that NASDAQ
will implement written surveillance
procedures for Trust Certificates.
Proposed Commentary .06 to Rule
5711(c) would provide that the Trust
Certificates will be subject to
NASDAQ’s equity trading rules.
Proposed Commentary .07 to Rule
5711(c) would provide that prior to the
commencement of trading of a
particular Trust Certificates listing
pursuant to this Rule, NASDAQ will
evaluate the nature and complexity of
the issue and, if appropriate, distribute
a circular to Members providing
guidance regarding compliance
responsibilities (including suitability
recommendations and account
approval) when handling transactions in
Trust Certificates.
Proposed Commentary .08 to Rule
5711(c) would provide that Trust
Certificates may be exchangeable at the
option of the holder into securities that
participate in the return of the
applicable underlying asset. In the event
that the Trust Certificates are
exchangeable at the option of the holder
and contain an Index Warrant, then a
Member must ensure that the Member’s
account is approved for options trading
in accordance with the rules of the
NASDAQ Options Market (‘‘NOM’’) in
order to exercise such rights.
Proposed Commentary .09 to Rule
5711(c) would provide that Trust
Certificates may pass-through periodic
payments of interest and principle of
the underlying securities.
Proposed Commentary .10 to Rule
5711(c) would provide that the Trust
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6839
payments may be guaranteed pursuant
to a financial guaranty insurance policy
which may include swap agreements.
Proposed Commentary .11 to Rule
5711(c) would provide that the Trust
Certificates may be subject to early
termination or call features.
The proposed rule change relating to
Trust Certificates is based on NYSEArca
Equities Rule 5.2(j)(7).
Commodity-Based Trust Shares
Proposed Rule 5711(d) would permit
the listing and trading, or trading
pursuant to unlisted trading privileges,
of Commodity-Based Trust Shares on
NASDAQ. Proposed Rule 5711(d) would
be applicable only to Commodity-Based
Trust Shares. Except to the extent
inconsistent with this Rule, or unless
the context otherwise requires, the
provisions of the trust issued receipts
rules, Bylaws, and all other rules and
procedures of the Board of Directors
shall be applicable to the trading on
NASDAQ of such securities.
Commodity-Based Trust Shares are
included within the definition of
‘‘security’’ or ‘‘securities’’ as such terms
are used in the Bylaws and Rules of
NASDAQ.
Description
‘‘Commodity-Based Trust Shares,’’ as
defined in proposed Rule
5711(d)(iii)(A), means a security (1) that
is issued by a Trust that holds a
specified commodity deposited with the
Trust; (2) that is issued by such Trust in
a specified aggregate minimum number
in return for a deposit of a quantity of
the underlying commodity; and (3) that,
when aggregated in the same specified
minimum number, may be redeemed at
a holder’s request by such Trust which
will deliver to the redeeming holder the
quantity of the underlying commodity.
Proposed Rule 5711(d)(iii)(B) states that
the term ‘‘commodity’’ is defined in
Section 1(a)(4) of the Commodity
Exchange Act.
Proposed Rule 5711(d)(iv) states that
NASDAQ may trade, either by listing or
pursuant to unlisted trading privileges,
Commodity-Based Trust Shares based
on an underlying commodity. Each
issue of a Commodity-Based Trust Share
will be designated as a separate series
and will be identified by a unique
symbol.
Initial Listing Standards
Proposed Rule 5711(d)(v)(A) states
that NASDAQ will establish a minimum
number of Commodity-Based Trust
Shares required to be outstanding at the
time of commencement of trading on
NASDAQ.
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Continued Listing Standards
Proposed Rule 5711(d)(v)(B) provides
that following the initial 12 month
period following commencement of
trading on NASDAQ of CommodityBased Trust Shares, NASDAQ will
consider the suspension of trading in or
removal from listing of such series
under any of the following
circumstances if:
• The Trust has more than 60 days
remaining until termination and there
are fewer than 50 record and/or
beneficial holders of Commodity-Based
Trust Shares for 30 or more consecutive
trading days;
• The Trust has fewer than 50,000
receipts issued and outstanding;
• The market value of all receipts
issued and outstanding is less than
$1,000,000;
• The value of the underlying
commodity is no longer calculated or
available on at least a 15-second delayed
basis from a source unaffiliated with the
sponsor, Trust, custodian or NASDAQ
or NASDAQ stops providing a hyperlink
on its Web site to any such unaffiliated
commodity value;
• The Intraday Indicative Value 12 is
no longer made available on at least a
15-second delayed basis; or
• Such other event shall occur or
condition exists which in the opinion of
NASDAQ makes further dealings on
NASDAQ inadvisable.
mstockstill on DSK4VPTVN1PROD with NOTICES
Other Provisions
Upon termination of a Trust,
NASDAQ requires that CommodityBased Trust Shares issued in connection
with such entity Trust be removed from
NASDAQ listing. A Trust may terminate
in accordance with the provisions of the
Trust prospectus, which may provide
for termination if the value of the Trust
falls below a specified amount.
Proposed Rule 5711(d)(v)(C) provides
that the stated term of the Trust shall be
as stated in the Trust prospectus.
However, a Trust may be terminated
under such earlier circumstances as may
be specified in the Trust prospectus.
Proposed Rule 5711(d)(v)(D) would
apply the following requirements to the
trustee of a Trust:
• The trustee of a Trust must be a
trust company or banking institution
having substantial capital and surplus
and the experience and facilities for
handling corporate trust business. In
cases where, for any reason, an
12 The Intraday Indicative Value is an estimate,
updated at least every 15 seconds, of the value of
a share of each series during NASDAQ’s Regular
Market Session (as defined in Rule 4120(b)(4)(D)).
See, e.g., NASDAQ Rules 5705(b)(3)(C) and
5705(b)(6)(A).
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Jkt 226001
individual has been appointed as
trustee, a qualified trust company or
banking institution must be appointed
co-trustee.
• No change is to be made in the
trustee of a listed issue without prior
notice to and approval of NASDAQ.
Proposed Rule 5711(d)(v)(E) states
that voting rights shall be as set forth in
the applicable Trust prospectus.
Proposed Rules 5711(d)(vi) and (vii)
describe the limitation of NASDAQ
liability and requirements for Market
Makers in Commodity-Based Trust
Shares (see below for a general
discussion of these requirements).
Commentary .01 to proposed
NASDAQ Rule 5711(d) provides that a
Commodity-Based Trust Share is a Trust
Issued Receipt that holds a specified
commodity deposited with the Trust.
Commentary .02 to proposed
NASDAQ Rule 5711(d) provides that
NASDAQ requires that Members
provide all purchasers of newly issued
Commodity-Based Trust Shares a
prospectus for the series of CommodityBased Trust Shares.
Commentary .03 to proposed
NASDAQ Rule 5711(d) provides that
transactions in Commodity-Based Trust
Shares will occur during the trading
hours specified in Rule 4120.
Commentary .04 to proposed
NASDAQ Rule 5711(d) provides that
NASDAQ will file separate proposals
under Section 19(b) of the Exchange Act
before the listing and/or trading of
Commodity-Based Trust Shares.
The proposed rule change relating to
Commodity-Based Trust Shares is based
on NYSEArca Equities Rule 8.201.
Currency Trust Shares
NASDAQ proposes to adopt new
NASDAQ Rule 5711(e) for the purpose
of permitting the listing and trading, or
trading pursuant to unlisted trading
privileges, of Currency Trust Shares.
Proposed Rule 5711(e) would be
applicable only to Currency Trust
Shares. Except to the extent inconsistent
with the proposed Rule, or unless the
context otherwise requires, the
provisions of the trust issued receipts
rules, Bylaws, and all other rules and
procedures of the Board of Directors
shall be applicable to the trading on
NASDAQ of such securities. Currency
Trust Shares are included within the
definition of ‘‘security’’ or ‘‘securities’’
as such terms are used in the Bylaws
and Rules of NASDAQ.
Description
Proposed Rule 5711(e)(iii) provides
that the term ‘‘Currency Trust Shares’’
as used in these proposed rules means,
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unless the context otherwise requires, a
security that:
• Is issued by a Trust that holds a
specified non-U.S. currency or
currencies deposited with the Trust;
• When aggregated in some specified
minimum number may be surrendered
to the Trust by an Authorized
Participant (as defined in the Trust’s
prospectus) to receive the specified nonU.S. currency or currencies; and
• Pays beneficial owners interest and
other distributions on the deposited
non-U.S. currency or currencies, if any,
declared and paid by the Trust.
Proposed Rule 5711(e)(iv) states that
NASDAQ may trade, either by listing or
pursuant to unlisted trading privileges,
Currency Trust Shares that hold a
specified non-U.S. currency or
currencies. Each issue of Currency Trust
Shares would be designated as a
separate series and shall be identified by
a unique symbol.
Initial Listing Standards
NASDAQ will establish a minimum
number of Currency Trust Shares
required to be outstanding at the time of
commencement of trading on NASDAQ.
Continued Listing Standards
Proposed Rule 5711(e)(v)(B) provides
that, following the initial 12 month
period following commencement of
trading on NASDAQ of Currency Trust
Shares, NASDAQ will consider the
suspension of trading in or removal
from listing of such series under any of
the following circumstances:
• If the Trust has more than 60 days
remaining until termination and there
are fewer than 50 record and/or
beneficial holders of Currency Trust
Shares for 30 or more consecutive
trading days;
• If the Trust has fewer than 50,000
Currency Trust Shares issued and
outstanding;
• If the market value of all Currency
Trust Shares issued and outstanding is
less than $1,000,000;
• If the value of the applicable nonU.S. currency is no longer calculated or
available on at least a 15-second delayed
basis from a source unaffiliated with the
sponsor, Trust, custodian or NASDAQ
or NASDAQ stops providing a hyperlink
on its Web site to any such unaffiliated
applicable non-U.S. currency value;
• If the Intraday Indicative Value is
no longer made available on at least a
15-second delayed basis; or
• If such other event shall occur or
condition exists which in the opinion of
NASDAQ makes further dealings on
NASDAQ inadvisable.
Upon termination of a Trust,
NASDAQ would require that Currency
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Trust Shares issued in connection with
such entity Trust be removed from
NASDAQ listing. A Trust may terminate
in accordance with the provisions of the
Trust prospectus, which may provide
for termination if the value of the Trust
falls below a specified amount.
Other
Proposed Rule 5711(e)(v)(C) states
that the stated term of the Trust shall be
as stated in the Trust prospectus.
However, a Trust may be terminated
under such earlier circumstances as may
be specified in the Trust prospectus.
Proposed Rule 5711(e)(v)(D) states
that the following requirements apply to
the trustee of a Trust:
• The trustee of a Trust must be a
trust company or banking institution
having substantial capital and surplus
and the experience and facilities for
handling corporate trust business. In
cases where, for any reason, an
individual has been appointed as
trustee, a qualified trust company or
banking institution must be appointed
co-trustee.
• No change is to be made in the
trustee of a listed issue without prior
notice to and approval of NASDAQ.
Proposed Rule 5711(e)(v)(E) states
that voting rights shall be as set forth in
the applicable Trust prospectus.
Proposed Rules 5711(e)(vi) and (vii)
set forth the requirements respecting
limitation of NASDAQ liability and
Market Maker Accounts (see below for
a general discussion of these
requirements).
Proposed Rule 5711(e)(viii) states that
NASDAQ may submit a rule filing
pursuant to Section 19(b)(2) of the Act
to permit the listing and trading of
Currency Trust Shares that do not
otherwise meet the standards set forth
in Commentary .04 to proposed Rule
5711(e).
Commentary .01 to proposed Rule
5711(e) states that a Currency Trust
Share is a Trust Issued Receipt that
holds a specified non-U.S. currency or
currencies deposited with the Trust.
Commentary .02 to proposed Rule
5711(e) states that NASDAQ requires
that Members provide all purchasers of
newly issued Currency Trust Shares a
prospectus for the series of Currency
Trust Shares.
Commentary .03 to proposed Rule
5711(e) provides that transactions in
Currency Trust Shares will occur during
the trading hours specified in NASDAQ
Rule 4120.
Commentary .04 to proposed Rule
5711(e) provides that NASDAQ may
approve an issue of Currency Trust
Shares for listing and/or trading
(including pursuant to unlisted trading
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privileges) pursuant to Rule 19b–4(e)
under the Act. Such issue shall satisfy
the criteria set forth in the proposed
rule, together with the following
criteria:
• A minimum of 100,000 shares of a
series of Currency Trust Shares is
required to be outstanding at
commencement of trading (this would
not apply to issues trading pursuant to
unlisted trading privileges);
• The value of the applicable nonU.S. currency, currencies or currency
index must be disseminated by one or
more major market data vendors on at
least a 15-second delayed basis;
• The Intraday Indicative Value must
be calculated and widely disseminated
by NASDAQ or one or more major
market data vendors on at least a 15second basis during the Regular Market
Session (as defined in NASDAQ Rule
4120; and
• NASDAQ will implement written
surveillance procedures applicable to
Currency Trust Shares.
Commentary .05 to proposed Rule
5711(e) states that if the value of a
Currency Trust Share is based in whole
or in part on an index that is maintained
by a broker-dealer, the broker-dealer
would be required to erect a ‘‘firewall’’
around the personnel responsible for the
maintenance of such index or who have
access to information concerning
changes and adjustments to the index,
and the index shall be calculated by a
third party who is not a broker-dealer.
Additionally, any advisory committee,
supervisory board or similar entity that
advises an index licensor or
administrator or that makes decisions
regarding the index or portfolio
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 applicable index or
portfolio.
Commentary .06 to proposed Rule
5711(e) provides that Currency Trust
Shares will be subject to NASDAQ’s
equity trading rules.
Trading Halts
Proposed Commentary .07 to Rule
5711(e) states that if the Intraday
Indicative Value or the value of the nonU.S. currency or currencies or the
currency index applicable to a series of
Currency Trust Shares is not being
disseminated as required, NASDAQ
may halt trading during the day on
which such interruption first occurs. If
such interruption persists past the
trading day in which it occurred,
NASDAQ will halt trading no later than
the beginning of the trading day
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6841
following the interruption. If NASDAQ
becomes aware that the net asset value
applicable to a series of Currency Trust
Shares is not being disseminated to all
market participants at the same time, it
will halt trading in such series until
such time as the net asset value is
available to all market participants.
The proposed rule change relating to
Currency Trust Shares is based on
NYSEArca Equities Rule 8.202.
Commodity Index Trust Shares
NASDAQ will consider for trading,
whether by listing or pursuant to
unlisted trading privileges, Commodity
Index Trust Shares that meet the criteria
of proposed Rule 5711(f).
Proposed Rule 5711(f)(ii) states that
proposed Rule 5711(f) would be
applicable only to Commodity Index
Trust Shares. Except to the extent
inconsistent with the proposed Rule, or
unless the context otherwise requires,
the provisions of the trust issued
receipts rules, Bylaws, and all other
rules and procedures of the Board of
Directors shall be applicable to the
trading on NASDAQ of such securities.
Commodity Index Trust Shares are
included within the definition of
‘‘security’’ or ‘‘securities’’ as such terms
are used in the Bylaws and Rules of
NASDAQ.
Description
Proposed Rule 5711(f)(iii) defines the
term ‘‘Commodity Index Trust Shares’’
to mean, as used in these proposed
Rules (unless the context otherwise
requires), a security that (A) is issued by
a Trust that (1) is a commodity pool as
defined in the Commodity Exchange Act
and regulations thereunder, and that is
managed by a commodity pool operator
registered with the Commodity Futures
Trading Commission; and (2) that holds
long positions in futures contracts on a
specified commodity index, or interests
in a commodity pool which, in turn,
holds such long positions; and (B) when
aggregated in some specified minimum
number may be surrendered to the Trust
by the beneficial owner to receive
positions in futures contracts on a
specified index and cash or short term
securities. The term ‘‘futures contract’’
is commonly known as a ‘‘contract of
sale of a commodity for future delivery’’
set forth in Section 2(a) of the
Commodity Exchange Act.
Proposed Rule 5711(f)(iv) states that
NASDAQ may trade, either by listing or
pursuant to unlisted trading privileges,
Commodity Index Trust Shares based on
one or more securities. The Commodity
Index Trust Shares based on particular
securities would be designated as a
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separate series and would be identified
by a unique symbol.
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Initial Listing Standards
Proposed Rule 5711(f)(v)(A) states
that NASDAQ will establish a minimum
number of Commodity Index Trust
Shares required to be outstanding at the
time of commencement of trading on
NASDAQ.
Continued Listing Standards
Under proposed Rule 5711(f)(v)(B),
NASDAQ will consider the suspension
of trading in or removal from listing of
a series of Commodity Index Trust
Shares under any of the following
circumstances:
• Following the initial twelve-month
period beginning upon the
commencement of trading of the
Commodity Index Trust Shares, there
are fewer than 50 record and/or
beneficial holders of Commodity Index
Trust Shares for 30 or more consecutive
trading days;
• If the value of the applicable
underlying index is no longer calculated
or available on at least a 15-second
delayed basis from a source unaffiliated
with the sponsor, the Trust or the
trustee of the Trust;
• If the net asset value for the trust is
no longer disseminated to all market
participants at the same time;
• If the Intraday Indicative Value is
no longer made available on at least a
15-second delayed basis; or
• If such other event shall occur or
condition exists which in the opinion of
NASDAQ makes further dealings on
NASDAQ inadvisable.
Upon termination of a Trust,
NASDAQ would require that
Commodity Index Trust Shares issued
in connection with such entity Trust be
removed from NASDAQ listing. A Trust
may terminate in accordance with the
provisions of the Trust prospectus,
which may provide for termination if
the value of the Trust falls below a
specified amount.
Proposed Rule 5711(f)(v)(C) provides
that the stated term of the Trust shall be
as stated in the Trust prospectus.
However, a Trust may be terminated
under such earlier circumstances as may
be specified in the Trust prospectus.
Proposed Rule 5711(f)(v)(D) states that
the following requirements apply to the
trustee of a Trust:
• The trustee of a Trust must be a
trust company or banking institution
having substantial capital and surplus
and the experience and facilities for
handling corporate trust business. In
cases where, for any reason, an
individual has been appointed as
trustee, a qualified trust company or
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banking institution must be appointed
co-trustee.
• No change is to be made in the
trustee of a listed issue without prior
notice to and approval of NASDAQ.
Proposed Rule 5711(f)(v)(E) provides
that voting rights shall be as set forth in
the applicable Trust prospectus.
Proposed Rules 5711(f)(vi) and (vii)
set forth the requirements respecting
limitation of NASDAQ liability and
Market Maker Accounts (see below for
a general discussion of these
requirements).
Commentary .01 to proposed Rule
5711(f) states that a Commodity Index
Trust Share is a Trust Issued Receipt
that holds long positions in futures
contracts on a specified commodity
index, or interests in a commodity pool
which, in turn, holds such long
positions, deposited with the Trust.
Commentary .02 to proposed Rule
5711(f) states that NASDAQ requires
that Members provide all purchasers of
newly issued Commodity Index Trust
Shares a prospectus for the series of
Commodity Index Trust Shares.
Commentary .03 to proposed Rule
5711(f) states that transactions in
Commodity Index Trust Shares will
occur during the trading hours specified
in Rule 4120.
Commentary .04 to proposed Rule
5711(f) states that NASDAQ will file
separate proposals under Section 19(b)
of the Act before trading, either by
listing or pursuant to unlisted trading
privileges, Commodity Index Trust
Shares.
The proposed rule change relating to
Commodity Index Trust Shares is based
on NYSEArca Equities Rule 8.202.
Description
Proposed Rule 5711(g)(iii) states that
the term ‘‘Commodity Futures Trust
Shares’’ as used in the proposed Rules
means, unless the context otherwise
requires, a security that: (i) is issued by
a Trust that is a commodity pool as
defined in the Commodity Exchange Act
and regulations thereunder, and that is
managed by a commodity pool operator
registered with the Commodity Futures
Trading Commission, and holds
positions in futures contracts that track
the performance of a specified
commodity, or interests in a commodity
pool which, in turn, holds such
positions; and (ii) is issued and
redeemed daily in specified aggregate
amounts at net asset value. The term
‘‘futures contract’’ is a ‘‘contract of sale
of a commodity for future delivery’’ set
forth in Section 2(a) of the Commodity
Exchange Act. The term ‘‘commodity’’ is
defined in Section 1(a)(4) of the
Commodity Exchange Act.
Designation of an Underlying
Commodity Futures Contract
Proposed Rule 5711(g)(iv) states that
NASDAQ may trade, either by listing or
pursuant to unlisted trading privileges,
Commodity Futures Trust Shares based
on an underlying commodity futures
contract. Each issue of Commodity
Futures Trust Shares shall be designated
as a separate series and shall be
identified by a unique symbol.
Commodity Futures Trust Shares
Initial Listing Standards
Proposed Rule 5711(g)(v)(A) states
that NASDAQ will establish a minimum
number of Commodity Futures Trust
Shares required to be outstanding at the
time of commencement of trading on
NASDAQ.
Proposed Rule 5711(g) governs the
listing of Commodity Futures Trust
Shares. NASDAQ will consider for
trading, whether by listing or pursuant
to unlisted trading privileges,
Commodity Futures Trust Shares that
meet the criteria of proposed Rule
5711(g).
Proposed Rule 5711(g)(ii) states that
proposed Rule 5711(g) would apply
only to Commodity Futures Trust
Shares. Except to the extent inconsistent
with the proposed Rule, or unless the
context otherwise requires, the
provisions of the trust issued receipts
rules, Bylaws, and all other rules and
procedures of the Board of Directors
shall be applicable to the trading on
NASDAQ of such securities. Commodity
Futures Trust Shares are included
within the definition of ‘‘security’’ or
‘‘securities’’ as such terms are used in
the Bylaws and Rules of NASDAQ.
Continued Listing Standards
Proposed Rule 5711(g)(v)(B) states
that NASDAQ will consider the
suspension of trading in or removal
from listing of a series of Commodity
Futures Trust Shares under any of the
following circumstances:
• If, following the initial twelvemonth period beginning upon the
commencement of trading of the
Commodity Futures Trust Shares: (1)
the Trust has fewer than 50,000
Commodity Futures Trust Shares issued
and outstanding; or (2) the market value
of all Commodity Futures Trust Shares
issued and outstanding is less than
$1,000,000; or (3) there are fewer than
50 record and/or beneficial holders of
Commodity Futures Trust Shares for 30
consecutive trading days;
• If the value of the underlying
futures contracts is no longer calculated
or available on at least a 15-second
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delayed basis during NASDAQ’s
Regular Market Session (as defined in
NASDAQ Rule 4120) from a source
unaffiliated with the sponsor, the Trust
or the trustee of the Trust;
• If the net asset value for the Trust
is no longer disseminated to all market
participants at the same time;
• If the Intraday Indicative Value is
no longer disseminated on at least a 15second delayed basis during NASDAQ’s
Regular Market Session (as defined in
NASDAQ Rule 4120); or
• If such other event shall occur or
condition exists which in the opinion of
NASDAQ makes further dealings on
NASDAQ inadvisable.
Upon termination of a Trust,
NASDAQ requires that Commodity
Futures Trust Shares issued in
connection with such trust be removed
from NASDAQ listing. A Trust will
terminate in accordance with the
provisions of the Trust prospectus.
Proposed Rule 5711(g)(v)(C) states
that the stated term of the Trust shall be
as stated in the prospectus. However, a
Trust may be terminated under such
earlier circumstances as may be
specified in the Trust prospectus.
Proposed Rule 5711(g)(v)(D) states
that the following requirements apply to
the trustee of a Trust:
• The trustee of a Trust must be a
trust company or banking institution
having substantial capital and surplus
and the experience and facilities for
handling corporate trust business. In
cases where, for any reason, an
individual has been appointed as
trustee, a qualified trust company or
banking institution must be appointed
co-trustee.
• No change is to be made in the
trustee of a listed issue without prior
notice to and approval of NASDAQ.
Proposed Rule 5711(g)(v)(E) states
that voting rights shall be as set forth in
the applicable Trust prospectus.
Proposed Rules 5711(g)(vi) and (vii)
describe the requirements for Market
Makers and the limitation of NASDAQ
liability in Commodity Futures Trust
Shares (see below for a general
discussion of these requirements).
Proposed Rule 5711(g)(viii) states that
NASDAQ will file separate proposals
under Section 19(b) of the Act before
listing and trading separate and distinct
Commodity Futures Trust Shares
designated on different underlying
futures contracts.
Commentary .01 to proposed Rule
5711(g) would require Members trading
in Commodity Futures Trust Shares to
provide all purchasers of newly issued
Commodity Futures Trust Shares a
prospectus for the series of Commodity
Futures Trust Shares.
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Commentary .02 to proposed Rule
5711(g) states that transactions in
Commodity Futures Trust Shares will
occur during the trading hours specified
in Rule 4120.
Commentary .03 to proposed Rule
5711(g) states that if the Intraday
Indicative Value or the value of the
underlying futures contract 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 value of the underlying
futures contract occurs. If the
interruption to the dissemination of the
Intraday Indicative Value or the value of
the underlying futures contract persists
past the trading day in which it
occurred, NASDAQ will halt trading no
later than the beginning of the trading
day following the interruption.
In addition, if NASDAQ becomes
aware that the net asset value with
respect to a series of Commodity
Futures Trust Shares is not
disseminated to all market participants
at the same time, it will halt trading in
such series until such time as the net
asset value is available to all market
participants.
Commentary .04 to proposed Rule
5711(g) states that NASDAQ’s rules
governing the trading of equity
securities apply.
Commentary .05 to proposed Rule
5711(g) states that NASDAQ will
implement written surveillance
procedures for Commodity Futures
Trust Shares.
The proposed rule change relating to
Commodity Futures Trust Shares is
based on NYSEArca Equities Rule 8.204.
Partnership Units
Proposed Rule 5711(h) would govern
the listing of Partnership Units. Under
proposed Rule 5711(h)(i), NASDAQ will
consider for trading, whether by listing
or pursuant to unlisted trading
privileges, Partnership Units that meet
the criteria of proposed Rule 5711(h).
Description
Under proposed Rule 5711(h)(ii), the
following terms as used in the proposed
Rule would, unless the context
otherwise requires, have the meanings
herein specified.
Proposed Rule 5711(h)(ii)(A) states
that the term ‘‘commodity’’ is defined in
Section 1(a)(4) of the Commodity
Exchange Act.
Proposed Rule 5711(h)(ii)(B) defines a
Partnership Unit for purposes of the
proposed Rule as a security (a) that is
issued by a partnership that invests in
any combination of futures contracts,
options on futures contracts, forward
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6843
contracts, commodities and/or
securities; and (b) that is issued and
redeemed daily in specified aggregate
amounts at net asset value.
Proposed Rule 5711(h)(iii) states that
NASDAQ may list and trade Partnership
Units based on an underlying asset,
commodity or security. Each issue of a
Partnership Unit would be designated as
a separate series and would be
identified by a unique symbol.
Initial Listing Standards
Proposed Rule 5711(h)(iv)(A) states
that NASDAQ will establish a minimum
number of Partnership Units required to
be outstanding at the time of
commencement of trading on NASDAQ.
Continued Listing Standards
Proposed Rule 5711(h)(iv)(B) provides
that NASDAQ will consider removal of
Partnership Units from listing under any
of the following circumstances:
• If, following the initial twelve
month period from the date of
commencement of trading of the
Partnership Units, (a) the partnership
has more than 60 days remaining until
termination and there are fewer than 50
record and/or beneficial holders of the
Partnership Units for 30 or more
consecutive trading days; (b) the
partnership has fewer than 50,000
Partnership Units issued and
outstanding; or (c) the market value of
all Partnership Units issued and
outstanding is less than $1,000,000;
• If the value of the underlying
benchmark investment, commodity or
asset is no longer calculated or available
on at least a 15-second delayed basis or
NASDAQ stops providing a hyperlink
on its Web site to any such investment,
commodity or asset value;
• If the Intraday Indicative Value is
no longer made available on at least a
15- second delayed basis; or
• If such other event shall occur or
condition exists which in the opinion of
NASDAQ makes further dealings on
NASDAQ inadvisable.
Upon termination of a partnership,
NASDAQ requires that Partnership
Units issued in connection with such
partnership be removed from NASDAQ
listing. A partnership will terminate in
accordance with the provisions of the
partnership prospectus.
Proposed Rule 5711(h)(iv)(C) provides
that the stated term of the partnership
shall be as stated in the prospectus.
However, such entity may be terminated
under such earlier circumstances as may
be specified in the Partnership
prospectus.
Proposed Rule 5711(h)(iv)(D) would
adopt the following requirements that
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apply to the general partner of a
partnership:
• The general partner of a partnership
must be an entity having substantial
capital and surplus and the experience
and facilities for handling partnership
business. In cases where, for any reason,
an individual has been appointed as
general partner, a qualified entity must
also be appointed as general partner.
• No change is to be made in the
general partner of a listed issue without
prior notice to and approval of
NASDAQ.
Proposed Rule 5711(h)(iv)(E) states
that voting rights shall be as set forth in
the applicable partnership prospectus.
Proposed Rule 5711(h)(v) and (vi)
describe the limitation of NASDAQ
liability and requirements for Market
Makers in Partnership Units (see below
for a general discussion of these
requirements).
Proposed Rule 5711(h)(vii) states that
NASDAQ will file separate proposals
under Section 19(b) of the Act before
listing and trading separate and distinct
Partnership Units designated on
different underlying investments,
commodities and/or assets.
Commentary .01 to proposed Rule
5711(h) states that NASDAQ requires
that Members provide to all purchasers
of newly issued Partnership Units a
prospectus for the series of Partnership
Units.
The proposed rule change relating to
Partnership Units is based on NYSEArca
Equities Rule 8.300.
Trust Units
NASDAQ proposes to add new Rule
5711(i) in order to permit trading, either
by listing or pursuant to unlisted trading
privileges, of Trust Units.
Proposed Rule 5711(i)(i) states that
the provisions in proposed Rule 5711(i)
are applicable only to Trust Units. In
addition, except to the extent
inconsistent with this Rule, or unless
the context otherwise requires, the rules
and procedures of the Board of Directors
shall be applicable to the trading on
NASDAQ of such securities. Trust Units
are included within the definition of
‘‘security,’’ ‘‘securities’’ and ‘‘derivative
securities products’’ as such terms are
used in the Rules of NASDAQ.
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Description
Proposed Rule 5711(i)(ii) states that
the following terms as used in the
proposed Rule shall, unless the context
otherwise requires, have the meanings
herein specified:
• The term ‘‘commodity’’ is defined
in Section 1(a)(4) of the Commodity
Exchange Act.
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• A Trust Unit is a security that is
issued by a trust or other similar entity
that is constituted as a commodity pool
that holds investments comprising or
otherwise based on any combination of
futures contracts, options on futures
contracts, forward contracts, swap
contracts, commodities and/or
securities.
Proposed Rule 5711(i)(iii) states that
NASDAQ may list and trade Trust Units
based on an underlying asset,
commodity, security or portfolio. Each
issue of a Trust Unit shall be designated
as a separate series and shall be
identified by a unique symbol.
Initial Listing Standards
Proposed Rule 5711(i)(iv)(A) states
that NASDAQ will establish a minimum
number of Trust Units required to be
outstanding at the time of
commencement of trading on NASDAQ.
NASDAQ will obtain a representation
from the issuer of each series of Trust
Units that the net asset value per share
for the series will be calculated daily
and will be made available to all market
participants at the same time.
Continued Listing Standards
Proposed Rule 5711(i)(iv)(B)(1) states
that NASDAQ will remove Trust Units
from listing under any of the following
circumstances:
• If following the initial twelve
month period following the
commencement of trading of Trust
Units, (i) the trust has more than 60
days remaining until termination and
there are fewer than 50 record and/or
beneficial holders of Trust Units for 30
or more consecutive trading days; (ii)
the trust has fewer than 50,000 Trust
Units issued and outstanding; or (iii) the
market value of all Trust Units issued
and outstanding is less than $1,000,000;
or
• If such other event shall occur or
condition exists which in the opinion of
the NASDAQ makes further dealings on
NASDAQ inadvisable.
Trading Halts
Proposed Rule 5711(i)(iv)(B)(2) states
that NASDAQ will halt trading in a
series of Trust Units if the circuit
breaker parameters in Rule 4120(a)(11)
have been reached. In exercising its
discretion to halt or suspend trading in
a series of Trust Units, NASDAQ may
consider any relevant factors. In
particular, if the portfolio and net asset
value per share are not being
disseminated as required, NASDAQ
may halt trading during the day in
which the interruption to the
dissemination of the portfolio holdings
or net asset value per share occurs. If the
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interruption to the dissemination of the
portfolio holdings or net asset value per
share persists past the trading day in
which it occurred, NASDAQ will halt
trading no later than the beginning of
the trading day following the
interruption.
Upon termination of a trust, NASDAQ
would require that Trust Units issued in
connection with such trust be removed
from NASDAQ listing. A trust will
terminate in accordance with the
provisions of the prospectus.
Proposed Rule 5711(i)(iv)(C) provides
that the stated term of the trust shall be
as stated in the prospectus. However,
such entity may be terminated under
such earlier circumstances as may be
specified in the prospectus.
Proposed Rule 5711(i)(iv)(D) would
adopt the following requirements
applicable to the trustee of a Trust:
• The trustee of a trust must be a trust
company or banking institution having
substantial capital and surplus and the
experience and facilities for handling
corporate trust business. In cases where,
for any reason, an individual has been
appointed as trustee, a qualified trust
company or banking institution must be
appointed co-trustee.
• No change is to be made in the
trustee of a listed issue without prior
notice to and approval of NASDAQ.
Proposed Rule 5711(i)(iv)(E) states
that voting rights shall be as set forth in
the prospectus.
Proposed Rules 5711(i)(v) and (vi)
describe the requirements for Market
Makers and the limitation of NASDAQ
liability respecting Trust Units (see
below for a general discussion of these
requirements).
Commentary .01 to proposed Rule
5711(i) states that NASDAQ requires
that Members provide to all purchasers
of newly issued Trust Units a
prospectus for the series of Trust Units.
Commentary .02 to proposed Rule
5711(i) states that transactions in Trust
Units will occur during the trading
hours specified in NASDAQ Rule 4120.
Commentary .03 to proposed Rule
5711(i) states that NASDAQ will file
separate proposals under Section 19(b)
of the Act before listing and trading
separate and distinct Trust Units
designated on different underlying
investments, commodities, assets and/or
portfolios.
The proposed rule change relating to
Trust Units is based on NYSEArca
Equities Rule 8.500.
Managed Trust Securities
Proposed Rule 5711(j) would adopt
listing standards for Managed Trust
Securities. Under proposed Rule
5711(j)(i), NASDAQ will consider for
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trading, whether by listing or pursuant
to unlisted trading privileges, Managed
Trust Securities that meet the criteria of
the proposed Rule. Proposed Rule
5711(j)(ii) states that the proposed Rule
would apply only to Managed Trust
Securities. Managed Trust Securities are
included within the definition of
‘‘security’’ or ‘‘securities’’ as such terms
are used in the Bylaws and Rules of
NASDAQ.
Description
Proposed Rule 5711(j)(iii)(A) defines
the term ‘‘Managed Trust Securities’’ to
mean, unless the context otherwise
requires, a security that is registered
under the Securities Act of 1933, as
amended, and which (1) is issued by a
Trust that is a commodity pool as
defined in the Commodity Exchange Act
and regulations thereunder, and that is
managed by a commodity pool operator
registered with the Commodity Futures
Trading Commission, and which holds
long and/or short positions in exchangetraded futures contracts and/or certain
currency forward contracts selected by
the Trust’s advisor consistent with the
Trust’s investment objectives, which
will only include, exchange-traded
futures contracts involving
commodities, currencies, stock indices,
fixed income indices, interest rates and
sovereign, private and mortgage or asset
backed debt instruments, and/or
forward contracts on specified
currencies, each as disclosed in the
Trust’s prospectus as such may be
amended from time to time; and (2) is
issued and redeemed continuously in
specified aggregate amounts at the next
applicable net asset value.
Proposed Rule 5711(j)(iii) also
includes the following definitions
concerning Managed Trust Securities:
• Disclosed Portfolio. Under
proposed Rule 5711(j)(iii)(B), the term
‘‘Disclosed Portfolio’’ means the
identities and quantities of the
securities and other assets held by the
Trust that will form the basis for the
Trust’s calculation of net asset value at
the end of the business day.
• Intraday Indicative Value. Under
proposed Rule 5711(j)(iii)(C), the term
‘‘Intraday Indicative Value’’ is the
estimated indicative value of a Managed
Trust Security based on current
information regarding the value of the
securities and other assets in the
Disclosed Portfolio.
• Reporting Authority. Under
proposed Rule 5711(j)(iii)(D), the term
‘‘Reporting Authority’’ in respect of a
particular series of Managed Trust
Securities means NASDAQ, an
institution, or a reporting or information
service designated by NASDAQ or by
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the Trust or the exchange that lists a
particular series of Managed Trust
Securities (if NASDAQ is trading such
series pursuant to unlisted trading
privileges) as the official source for
calculating and reporting information
relating to such series, including, but
not limited to, the Intraday Indicative
Value; the Disclosed Portfolio; the
amount of any cash distribution to
holders of Managed Trust Securities, net
asset value, or other information relating
to the issuance, redemption or trading of
Managed Trust Securities. A series of
Managed Trust Securities may have
more than one Reporting Authority,
each having different functions.
Proposed Rule 5711(j)(iv) states that
NASDAQ may trade, either by listing or
pursuant to unlisted trading privileges,
Managed Trust Securities based on the
underlying portfolio of exchange-traded
futures and/or certain currency forward
contracts described in the related
prospectus. Each issue of Managed
Trust Securities shall be designated as a
separate trust or series and shall be
identified by a unique symbol.
Initial Listing Standards
Under proposed Rule 5711(j)(v)(A),
Managed Trust Securities will be listed
and traded on NASDAQ subject to
application of the following initial
listing criteria:
• NASDAQ will establish a minimum
number of Managed Trust Securities
required to be outstanding at the time of
commencement of trading on NASDAQ.
• NASDAQ will obtain a
representation from the issuer of each
series of Managed Trust Securities that
the net asset value per share for the
series will be calculated daily and that
the net asset value and the Disclosed
Portfolio will be made available to all
market participants at the same time.
Continued Listing Standards
Under proposed Rule 5711(j)(v)(B),
each series of Managed Trust Securities
will be listed and traded on NASDAQ
subject to application of the following
continued listing criteria:
• The Intraday Indicative Value for
Managed Trust Securities will be widely
disseminated by one or more major
market data vendors at least every
15 seconds during the time when the
Managed Trust Securities trade on
NASDAQ.
• The Disclosed Portfolio will be
disseminated at least once daily and
will be made available to all market
participants at the same time.
• The Reporting Authority that
provides the Disclosed Portfolio must
implement and maintain, or be subject
to, procedures designed to prevent the
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use and dissemination of material nonpublic information regarding the actual
components of the portfolio.
Under proposed Rule 5711(j)(v)(B)(3),
NASDAQ will consider the suspension
of trading in or removal from listing of
a series of Managed Trust Securities
under any of the following
circumstances:
• If, following the initial twelvemonth period beginning upon the
commencement of trading of the
Managed Trust Securities: (A) The Trust
has fewer than 50,000 Managed Trust
Securities issued and outstanding; (B)
the market value of all Managed Trust
Securities issued and outstanding is less
than $1,000,000; or (C) there are fewer
than 50 record and/or beneficial holders
of Managed Trust Securities for 30
consecutive trading days;
• If the Intraday Indicative Value for
the Trust is no longer calculated or
available or the Disclosed Portfolio is
not made available to all market
participants at the same time;
• If the Trust issuing the Managed
Trust Securities has failed to file any
filings required by the Securities and
Exchange Commission or if NASDAQ is
aware that the Trust is not in
compliance with the conditions of any
exemptive order or no-action relief
granted by the Securities and Exchange
Commission to the Trust with respect to
the series of Managed Trust Securities;
or
• If such other event shall occur or
condition exists which in the opinion of
NASDAQ makes further dealings on
NASDAQ inadvisable.
Trading Halts
Proposed Rule 5711(j)(v)(B)(4) states
that, if the Intraday Indicative Value of
a series of Managed Trust Securities 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 occurs. If the interruption to the
dissemination of the Intraday Indicative
Value persists past the trading day in
which it occurred, NASDAQ will halt
trading no later than the beginning of
the trading day following the
interruption. If a series of Managed
Trust Securities is trading on NASDAQ
pursuant to unlisted trading privileges,
NASDAQ will halt trading in that series
as specified in Rule 4120(a) or (b) as
applicable. In addition, if NASDAQ
becomes aware that the net asset value
or the Disclosed Portfolio with respect
to a series of Managed Trust Securities
is not disseminated to all market
participants at the same time, it will halt
trading in such series until such time as
the net asset value or the Disclosed
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Portfolio is available to all market
participants.
Proposed Rule 5711(j)(v)(B)(5) states
that upon termination of a Trust,
NASDAQ requires that Managed Trust
Securities issued in connection with
such Trust be removed from NASDAQ
listing. A Trust will terminate in
accordance with the provisions of the
Trust prospectus.
Proposed Rule 5711(j)(v)(C) states that
the term of the Trust shall be as stated
in the prospectus. However, a Trust may
be terminated under such earlier
circumstances as may be specified in
the Trust prospectus.
Proposed Rule 5711(j)(v)(D) would
state that the following requirements
apply to the trustee of a Trust:
• The trustee of a Trust must be a
trust company or banking institution
having substantial capital and surplus
and the experience and facilities for
handling corporate trust business. In
cases where, for any reason, an
individual has been appointed as
trustee, a qualified trust company or
banking institution must be appointed
co-trustee.
• No change is to be made in the
trustee of a listed issue without prior
notice to and approval of NASDAQ.
Proposed Rule 5711(j)(v)(E) states that
voting rights shall be as set forth in the
applicable Trust prospectus.
Proposed Rules 5711(j)(vi) and (vii)
describe the regulatory requirements for
registered Market Makers in Managed
Trust Securities, and the limitation of
NASDAQ liability respecting Managed
Trust Securities (see below for a general
discussion of these requirements).
Proposed Rule 5711(j)(viii) states that
NASDAQ will file separate proposals
under Section 19(b) of the Act before
listing and trading separate and distinct
Managed Trust Securities.
In addition to the above, the
Commentary to proposed Rule 5711(j)
includes the following provisions:
Commentary .01 to proposed Rule
5711(j) states that NASDAQ requires
that Members provide all purchasers of
newly issued Managed Trust Securities
a prospectus for the series of Managed
Trust Securities.
Commentary .02 to proposed Rule
5711(j) states that transactions in
Managed Trust Securities will occur
during the trading hours specified in
Rule 4120.
Commentary .03 to proposed Rule
5711(j) states that NASDAQ’s rules
governing the trading of equity
securities apply.
Commentary .04 to proposed Rule
5711(j) states that NASDAQ will
implement written surveillance
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procedures for Managed Trust
Securities.
Commentary .05 to proposed Rule
5711(j) states that if the Trust’s advisor
is affiliated with a broker-dealer, the
broker-dealer shall erect a ‘‘fire wall’’
around the personnel who have access
to information concerning changes and
adjustments to the Disclosed Portfolio.
Personnel who make decisions on the
Trust’s portfolio composition must be
subject to procedures designed to
prevent the use and dissemination of
material nonpublic information
regarding the applicable Trust portfolio.
The proposed rule change relating to
Managed Trust Securities is based on
NYSEArca Equities Rule 8.700.
Currency Warrants
Proposed Rule 5711(k) would govern
the listing of Currency Warrants. Under
proposed Rule 5711(k)(i), the listing of
Currency Warrant issues is considered
on a case-by-case basis. Currency
Warrant issues will be evaluated for
listing against the following criteria:
Initial Listing Standards
Proposed Rule 5711(k)(i)(A) requires
the warrant issuer to have a minimum
tangible net worth in excess of
$250,000,000 and otherwise to exceed
substantially the earnings requirements
set forth in Rule 5405(b).13 In the
alternative, the warrant issuer will be
expected to have a minimum tangible
net worth of $150,000,000 and
otherwise to exceed substantially the
earnings requirements set forth in Rule
5405(b), and not to have issued warrants
where the original issue price of all the
issuer’s currency warrant offerings
(combined with currency warrant
offerings of the issuer’s affiliates) listed
on a national securities exchange or
traded through the facilities of NASDAQ
exceeds 25% of the warrant issuer’s net
worth.
Proposed Rule 5711(k)(i)(B) states that
the term must be one to five years from
date of issuance.
Proposed Rule 5711(k)(i)(C) requires
that there must be a minimum public
distribution of 1,000,000 warrants
together with a minimum of 400 public
holders, and an aggregate market value
of $4,000,000. In the alternative, there
must be a minimum public distribution
of 2,000,000 warrants together with a
minimum number of public warrant
holders determined on a case by case
basis, an aggregate market value of
$12,000,000 and an initial warrant price
of $6.
13 Rule 5405(b) sets forth initial listing standards
for primary equity securities.
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Under proposed Rule 5711(k)(i)(D),
the warrants will be cash settled in U.S.
dollars.
Under proposed Rule 5711(k)(i)(E), all
currency warrants must include in their
terms provisions specifying the time by
which all exercise notices must be
submitted, and that all unexercised
warrants that are in the money will be
automatically exercised on their
expiration date or on or promptly
following the date on which such
warrants are delisted by NASDAQ (if
such warrant issue has not been listed
on another organized securities market
in the United States).
Under proposed Rule 5711(k)(ii),
NASDAQ will file separate proposals
under Section 19(b) of the Act before
listing and trading separate and distinct
Currency Warrants.
Regulatory Matters
Proposed Rule 5711(k)(iii) describes
regulatory matters applicable to
Currency Warrants. Specifically:
• No Member shall accept an order
from a customer to purchase or sell a
Currency Warrant unless the customer’s
account has been approved for options
trading pursuant to NOM Rules Chapter
XI, Section 7.
• Suitability. The provisions of NOM
Rules Chapter XI, Section 9 shall apply
to recommendations in Currency
Warrants and the term ‘‘option’’ as used
therein shall be deemed for purposes of
this Rule to include such warrants.
• Discretionary Accounts. Any
account in which a Member exercises
discretion to trade in Currency Warrants
shall be subject to the provisions of
NOM Rules, Chapter XI, Section 10 with
respect to such trading. For purposes of
this Rule, the terms ‘‘option’’ and
‘‘options contract’’ as used in Chapter
XI, Section 10 shall be deemed to
include Currency Warrants.
• Supervision of Accounts. NOM
Rules, Chapter XI, Section 8 shall apply
to all customer accounts of a Member in
which transactions in Currency
Warrants are effected. The term
‘‘option’’ as used in Chapter XI, Section
8 shall be deemed to include Currency
Warrants.
• Public Customer Complaints. NOM
Rules, Chapter XI, Section 24 shall
apply to all public customer complaints
received by a Member regarding
Currency Warrants. The term ‘‘option’’
as used in Chapter XI, Section 24 shall
be deemed to include such warrants.
• Communications with Public
Customers. Members participating in
Currency Warrants shall be bound to
comply with the Communications and
Disclosures rule of FINRA, as
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subject securities affected by the
proposed rules (‘‘securities’’):
Trading Halts or Suspensions
Under proposed Rule 5711(k)(iv),
trading on NASDAQ in any Currency
Warrant will be halted whenever
NASDAQ deems such action
appropriate in the interests of a fair and
orderly market or to protect investors.
Trading in Currency Warrants that have
been the subject of a halt or suspension
by NASDAQ may resume if NASDAQ
determines that the conditions which
led to the halt or suspension are no
longer present, or that the interests of a
fair and orderly market are best served
by a resumption of trading.
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applicable, as though such rule were
part of these Rules.
Information Circular
Prior to the commencement of
trading, NASDAQ will inform its
Members in an Information Circular of
the special characteristics and risks
associated with trading the securities.
Specifically, the Information Circular
will discuss the following: (1) The
procedures for purchases and
redemptions of the securities (and/or
that the securities are not individually
redeemable); (2) NASDAQ Rule 2310,
which imposes suitability obligations on
NASDAQ Members with respect to
recommending transactions in the
securities 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 securities prior to or
concurrently with the confirmation of a
transaction; and (5) trading information.
In addition, the Information Circular
will advise Members, prior to the
commencement of trading, of the
prospectus delivery requirements
applicable to the securities. Members
purchasing securities for resale to
investors will deliver a prospectus to
such investors. The Information Circular
will also discuss any exemptive, noaction and interpretive relief granted by
the Commission from any rules under
the Act.
In addition, the Information Circular
will reference that the securities are
subject to various fees and expenses
described in the registration statement.
If applicable, the Information Circular
will also reference that the CFTC has
regulatory jurisdiction over the trading
of futures contracts.
The Information Circular will also
disclose the trading hours of the
securities and, if applicable, the Net
Asset Value (‘‘NAV’’) calculation time
for the securities. The Information
Circular will disclose that information
about the securities and the
corresponding indexes, if applicable,
will be publicly available on the Web
site for the securities. The Information
Circular will also reference, if
applicable, the fact that there is no
regulated source of last sale information
regarding physical commodities, and
that the Commission has no jurisdiction
over the trading of physical
commodities or futures contracts on
which the value of the securities may be
based.
The Information Circular will also
reference the risks involved in trading
the securities during the Opening
Process and the Post-Market Session
Reporting of Warrant Positions
Proposed Rule 5711(k)(v) would
govern reporting of warrant positions.
Proposed Rule 5711(k)(v)(A) would
require each Member to file with
NASDAQ a report with respect to each
account in which the Member has an
interest, each account of a partner,
officer, director, or employee of such
Member, and each customer account
that has established an aggregate
position (whether long or short) of
100,000 warrants covering the same
underlying currency, combining for
purposes of the proposed Rule: (1) Long
positions in put warrants and short
positions in call warrants, and (2) short
positions in put warrants with long
positions in call warrants. The report
shall be in such form as may be
prescribed by NASDAQ and shall be
filed no later than the close of business
on the next day following the day on
which the transaction or transactions
requiring the filing of such report
occurred.
Proposed Rule 5711(k)(v)(B) states
that whenever a report shall be required
to be filed with respect to an account
pursuant to the proposed Rule, the
Member filing the same must file with
NASDAQ such additional periodic
reports with respect to such account as
NASDAQ may from time to time
require.
Proposed Rule 5711(k)(v)(C) states
that all reports required by the proposed
Rule shall be filed with NASDAQ in
such manner and form as prescribed by
NASDAQ.
The proposed rule change relating to
Currency Warrants is based on
NYSEArca Equities Rules 8.3, 8.4, 8.5,
8.6, 8.7, 8.8, 8.9, 8.12, and 8.13.
General Provisions
To the extent not specifically
addressed in the respective proposed
rules, the following general provisions
apply to all of the proposed rules and
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when an updated Intraday Indicative
Value will not be calculated or publicly
disseminated and, if applicable, the
risks involved in trading the securities
during the Regular Market Session when
the Intraday Indicative Value may be
static or based in part on the fluctuation
of currency exchange rates when the
underlying markets have closed prior to
the close of NASDAQ’s Regular Market
Session.
Limitation of NASDAQ Liability
Neither NASDAQ, any agent of
NASDAQ, nor the Reporting Authority
(if applicable), shall have any liability
for damages, claims, losses or expenses
caused by any errors, omissions, or
delays in calculating or disseminating
any applicable underlying index or asset
value; the current value of the
applicable positions or interests
required to be deposited to a Trust, if
applicable, in connection with issuance
of the securities; net asset value; or any
other information relating to the
purchase, redemption, or trading of the
securities, resulting from any negligent
act or omission by NASDAQ, any agent
of NASDAQ, or the Reporting Authority
(if applicable), or any act, condition or
cause beyond the reasonable control of
NASDAQ, any agent of NASDAQ, or the
Reporting Authority (if applicable),
including, but not limited to, an act of
God; fire; flood; extraordinary weather
conditions; war; insurrection; riot;
strike; accident; action of government;
communications or power failure;
equipment or software malfunction; or
any error, omission or delay in the
reports of transactions in the applicable
positions or interests.
Market Maker Accounts
A registered Market Maker in the
securities described below must file
with NASDAQ, in a manner prescribed
by NASDAQ, and keep current a list
identifying all accounts for trading in:
• In the case of Commodity-Based
Trust Shares, the applicable underlying
commodity, related commodity futures
or options on commodity futures, or any
other related commodity derivatives,
which the registered Market Maker may
have or over which it may exercise
investment discretion (‘‘Underlying
Commodities’’);
• In the case of Currency Trust
Shares, the applicable underlying nonU.S. currency, options, futures or
options on futures on such currency, or
any other derivatives based on such
currency, which the registered Market
Maker may have or over which it may
exercise investment discretion
(‘‘Underlying Currencies’’);
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• In the case of Commodity Index
Trust Shares, the applicable physical
commodities included in, or options,
futures or options on futures on, an
index underlying an issue of
Commodity Index Trust Shares or any
other derivatives based on such index or
based on any commodity included in
such index, which the registered Market
Maker may have or over which it may
exercise investment discretion
(‘‘Underlying Commodity Index
Assets’’);
• In the case of Commodity Futures
Trust Shares, the applicable underlying
commodity, related futures or options
on futures, or any other related
derivatives, which the registered Market
Maker may have or over which it may
exercise investment discretion
(‘‘Underlying Commodity Futures’’);
• In the case of Partnership Units, the
applicable underlying asset or
commodity, related futures or options
on futures, or any other related
derivatives, which the registered Market
Maker may have or over which it may
exercise investment discretion
(‘‘Underlying Partnership Unit Assets’’);
• In the case of Trust Units, the
applicable underlying commodity,
related commodity futures or options on
commodity futures, or any other related
commodity derivatives, which the
registered Market Maker may have or
over which it may exercise investment
discretion (‘‘Underlying Trust Unit
Assets’’); and
• In the case of Managed Trust
Securities, the underlying commodity or
applicable currency, related futures or
options on futures, or any other related
derivatives, which a registered Market
Maker may have or over which it may
exercise investment discretion
(‘‘Underlying Managed Trust Assets’’).
No registered Market Maker in the
above mentioned securities shall trade
in the respective Underlying
Commodities, Underlying Currencies,
Underlying Commodity Index Assets,
Underlying Commodity Futures,
Underlying Partnership Unit Assets,
Underlying Trust Unit Assets, and/or
the Underlying Managed Trust Assets
(collectively, ‘‘Underlying Assets’’) in
an account in which a market maker,
directly or indirectly, controls trading
activities, or has a direct interest in the
profits or losses thereof, which has not
been reported to NASDAQ.
In addition to the existing obligations
under NASDAQ rules regarding the
production of books and records (see,
e.g., Rule 4625), a registered Market
Maker in the above mentioned securities
is required to make available to
NASDAQ such books, records or other
information pertaining to transactions
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by such entity or registered or nonregistered employee affiliated with such
entity for its or their own accounts for
trading the applicable Underlying
Assets as may be requested by
NASDAQ.
Trading Rules
NASDAQ deems the securities to be
equity securities, thus rendering trading
in the securities subject to NASDAQ’s
existing rules governing the trading of
equity securities. The securities will
trade on NASDAQ from 8 a.m. to 8 p.m.
E.T. NASDAQ has appropriate rules to
facilitate transactions in the securities
during all trading sessions. The
minimum price increment for quoting
and entry of orders in equity securities
traded on NASDAQ is $0.01, with the
exception of securities that are priced
less than $1.00 for which the minimum
price increment for order entry is
$0.0001.14
Surveillance
NASDAQ believes that its
surveillance procedures are adequate to
address any concerns about the trading
of the securities on NASDAQ. Trading
of the securities on NASDAQ will be
subject to FINRA’s surveillance
procedures for derivative products.15
NASDAQ may obtain information via
the Intermarket Surveillance Group
(‘‘ISG’’) from other exchanges who are
members or affiliates of the ISG.16
In addition, to the extent that a fund
invests in futures contracts, not more
14 See, e.g., Rule 4751.
Regulation NMS Rule 612, Minimum Pricing
Increment, provides:
a. No national securities exchange, national
securities association, alternative trading system,
vendor, or broker or dealer shall display, rank, or
accept from any person a bid or offer, an order, or
an indication of interest in any NMS stock priced
in an increment smaller than $0.01 if that bid or
offer, order, or indication of interest is priced equal
to or greater than $1.00 per share.
b. No national securities exchange, national
securities association, alternative trading system,
vendor, or broker or dealer shall display, rank, or
accept from any person a bid or offer, an order, or
an indication of interest in any NMS stock priced
in an increment smaller than $0.0001 if that bid or
offer, order, or indication of interest is priced less
than $1.00 per share.
c. The Commission, by order, may exempt from
the provisions of this section, either
unconditionally or on specified terms and
conditions, any person, security, quotation, or
order, or any class or classes of persons, securities,
quotations, or orders, if the Commission determines
that such exemption is necessary or appropriate in
the public interest, and is consistent with the
protection of investors.
17 CFR 242.612.
15 FINRA surveils trading on NASDAQ pursuant
to a regulatory services agreement. NASDAQ is
responsible for FINRA’s performance under this
regulatory services agreement.
16 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
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than 10% of the weight of such futures
contracts in the aggregate shall consist
of components whose principal trading
market is not a member of ISG or is a
market with which the Exchange does
not have a comprehensive surveillance
sharing agreement. NASDAQ has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
As a general matter, NASDAQ has
regulatory jurisdiction over its Members
and their associated persons, which
includes any person or entity
controlling a Member, as well as a
subsidiary or affiliate of a Member that
is in the securities business. A
subsidiary or affiliate of a Member that
does business only in commodities or
futures contracts would not be subject to
NASDAQ jurisdiction, but NASDAQ
could obtain information regarding the
activities of such subsidiary or affiliate
through surveillance sharing agreements
with regulatory organizations of which
such subsidiary or affiliate is a Member.
Trading Halts
With respect to trading halts, in
addition to the halt requirements in the
proposed rules, NASDAQ may consider
all relevant factors in exercising its
discretion to halt or suspend trading in
the securities. Trading in the securities
may be halted because of market
conditions or for reasons that, in the
view of NASDAQ, make trading in the
securities inadvisable. These may
include: (1) The extent to which trading
in the underlying asset or assets is not
occurring; or (2) whether other unusual
conditions or circumstances detrimental
to the maintenance of a fair and orderly
market are present. In addition, trading
in the securities will be subject to
trading halts caused by extraordinary
market volatility pursuant to NASDAQ’s
‘‘circuit breaker’’ Rule 4120(a)(11) or by
the halt or suspension of the trading of
the current underlying asset or assets.
If the applicable Intraday Indicative
Value, value of the underlying index, or
the value of the underlying asset or
assets (e.g., securities, commodities,
currencies, futures contracts, or other
assets) is not being disseminated as
required, NASDAQ may halt trading
during the day in which such
interruption to the dissemination
occurs. If the interruption to the
dissemination of the applicable Intraday
Indicative Value, value of the
underlying index, or the value of the
underlying asset or assets persists past
the trading day in which it occurred,
NASDAQ will halt trading no later than
the beginning of the trading day
following the interruption. In addition,
if NASDAQ becomes aware that the net
E:\FR\FM\09FEN1.SGM
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Federal Register / Vol. 77, No. 27 / Thursday, February 9, 2012 / Notices
mstockstill on DSK4VPTVN1PROD with NOTICES
asset value with respect to a series of the
securities is not disseminated to all
market participants at the same time, it
will halt trading in such series until
such time as the net asset value is
available to all market participants.
Suitability
Currently, NASDAQ Rule 2310
governs Recommendations to Customers
(Suitability), Fair Dealing with
Customers, Suitability Obligations to
Institutional Customers, and Direct
Participation Programs.
Prior to the commencement of trading
of any inverse, leveraged, or inverse
leveraged securities, NASDAQ will
inform its Members of the suitability
requirements of NASDAQ Rule 2310 in
an Information Circular. Specifically,
Members will be reminded in the
Information Circular that, in
recommending transactions in these
securities, they must have a reasonable
basis to believe that (1) the
recommendation is suitable for a
customer given reasonable inquiry
concerning the customer’s investment
objectives, financial situation, needs,
and any other information known by
such Member, and (2) the customer can
evaluate the special characteristics, and
is able to bear the financial risks, of an
investment in the securities. In
connection with the suitability
obligation, the Information Circular will
also provide that members must make
reasonable efforts to obtain the
following information: (1) The
customer’s financial status; (2) the
customer’s tax status; (3) the customer’s
investment objectives; and (4) such
other information used or considered to
be reasonable by such Member or
registered representative in making
recommendations to the customer.
In addition, FINRA has implemented
increased sales practice and customer
margin requirements for FINRA
members applicable to inverse,
leveraged, and inverse leveraged
securities and options on such
securities, as described in FINRA
Regulatory Notices 09–31 (June 2009),
09–53 (August 2009) and 09–65
(November 2009) (‘‘FINRA Regulatory
Notices’’). Members that carry customer
accounts will be required to follow the
FINRA guidance set forth in the FINRA
Regulatory Notices. The Information
Circular will reference the FINRA
Regulatory Notices regarding sales
practice and customer margin
requirements for FINRA members
applicable to inverse, leveraged, and
inverse leveraged securities and options
on such securities.
NASDAQ notes that, for such inverse,
leveraged, and inverse leveraged
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Jkt 226001
securities, the corresponding funds seek
leveraged, inverse, or leveraged inverse
returns on a daily basis, and do not seek
to achieve their stated investment
objective over a period of time greater
than one day because compounding
prevents the funds from perfectly
achieving such results. Accordingly,
results over periods of time greater than
one day typically will not be a leveraged
multiple (+200%), the inverse (¥100%)
or a leveraged inverse multiple
(¥200%) of the period return of the
applicable benchmark and may differ
significantly from these multiples.
NASDAQ’s Information Circular, as well
as the applicable registration statement,
will provide information regarding the
suitability of an investment in such
securities.
2. Statutory Basis
The proposed rule change, as
amended, is consistent with section 6(b)
of the Act,17 in general, and furthers the
objectives of section 6(b)(5),18
particularly, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
Specifically, NASDAQ believes that
the proposed rule change should
enhance depth and liquidity, and
should promote narrower markets in the
subject securities. Furthermore,
NASDAQ’s listing requirements as
proposed herein are at least as stringent
as those of any other national securities
exchange and, consequently, the
proposed rule change is consistent with
the protection of investors and the
public interest.
Additionally, the proposal is designed
to prevent fraudulent and manipulative
acts and practices, as all of the proposed
new products are subject to existing
NASDAQ trading rules, together with
specific requirements for registered
market makers, books and record
production, surveillance procedures,
suitability and prospectus requirements,
and requisite NASDAQ approvals, all
set forth above.
The proposal is also designed to
promote just and equitable principles of
trade by way of initial and continued
listing standards which, if not
maintained, will result in the
discontinuation of trading in the
affected products. These requirements,
together with the applicable NASDAQ
17 15
18 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00078
Fmt 4703
Sfmt 4703
6849
equity trading rules (which apply to the
proposed products), ensure that no
investor would have an unfair
advantage over another respecting the
trading of the subject products. On the
contrary, all investors will have the
same access to, and use of, information
concerning the specific products and
trading in the specific products, all to
the benefit of public customers and the
marketplace as a whole.
Furthermore, the proposal is designed
to remove impediments to and perfect
the mechanism of a free and open
market and a national market system by
adopting listing standards that will lead
ultimately to the trading of the proposed
new products on NASDAQ, just as they
are currently traded on other exchanges.
NASDAQ believes that individuals and
entities permitted to make markets on
NASDAQ in the proposed new products
should enhance competition within the
mechanism of a free and open market
and a national market system, and
customers and other investors in the
national market system should benefit
from more depth and liquidity in the
market for the proposed new products.
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, as amended.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) By order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
E:\FR\FM\09FEN1.SGM
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Federal Register / Vol. 77, No. 27 / Thursday, February 9, 2012 / Notices
Comments may be submitted by any of
the following methods:
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–66321; File No. SR–
NYSEArca–2011–95]
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2012–013 on the
subject line.
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Granting Approval of
Proposed Rule Change Relating to
Listing and Trading of the PIMCO Total
Return Exchange Traded Fund Under
NYSE Arca Equities Rule 8.600
Paper Comments
February 3, 2012.
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
I. Introduction
mstockstill on DSK4VPTVN1PROD with NOTICES
All submissions should refer to File
Number SR–NASDAQ–2012–013. This
file number should be included on the
subject line if email 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 Web site viewing and
printing in the Commission’s Public
Reference Section, 100 F Street NE.,
Washington, DC 20549–1090, on official
business days between 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–2012–013 and
should be submitted on or before March
1, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–2994 Filed 2–8–12; 8:45 am]
BILLING CODE 8011–01–P
19 17
CFR 200.30–3(a)(12).
VerDate Mar<15>2010
18:04 Feb 08, 2012
Jkt 226001
On December 13, 2011, NYSE Arca,
Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of the PIMCO Total Return
Exchange Traded Fund (‘‘Fund’’) under
NYSE Arca Equities Rule 8.600. The
proposed rule change was published for
comment in the Federal Register on
December 22, 2011.3 The Commission
received no comments on the proposal.
This order grants approval of the
proposed rule change.
II. Description of the Proposed Rule
Change
The Exchange proposes to list and
trade the Shares of the Fund pursuant
to NYSE Arca Equities Rule 8.600,
which governs the listing and trading of
Managed Fund Shares on the Exchange.
The Shares will be offered by PIMCO
ETF Trust (‘‘Trust’’), a statutory trust
organized under the laws of the State of
Delaware and registered with the
Commission as an open-end
management investment company.4 The
investment manager to the Fund is
Pacific Investment Management
Company LLC (‘‘PIMCO’’ or ‘‘Adviser’’).
PIMCO Investments LLC serves as the
distributor for the Fund, and State Street
Bank & Trust Co. serves as the custodian
and transfer agent for the Fund.
The Adviser is affiliated with a
broker-dealer and has implemented a
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 65988
(December 16, 2011), 76 FR 79741 (‘‘Notice’’).
4 The Trust is registered under the Investment
Company Act of 1940 (15 U.S.C. 80a–1) (‘‘1940
Act’’). On July 7, 2011, the Trust filed with the
Commission Post-Effective Amendment No. 30 to
Form N–1A relating to the Fund (File Nos. 333–
155395 and 811–22250) (‘‘Registration Statement’’).
In addition, the Commission has issued an order
granting certain exemptive relief to the Trust under
the 1940 Act. See Investment Company Act Release
No. 28993 (November 10, 2009) (File No. 812–
13571) (‘‘Exemptive Order’’).
2 17
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
‘‘fire wall’’ with respect to such brokerdealer regarding access to information
concerning the composition and/or
changes to the Fund’s portfolio. If
PIMCO elects to hire a sub-adviser for
the Fund that is also affiliated with a
broker-dealer, such sub-adviser will
implement a fire wall with respect to
such broker-dealer regarding access to
information concerning the composition
and/or changes to the portfolio.5
Description of the Fund
The Fund will seek maximum total
return, consistent with preservation of
capital and prudent investment
management. The Fund will invest
under normal market circumstances 6 at
least 65% of its total assets in a
diversified portfolio of Fixed Income
Instruments 7 of varying maturities. The
Fund will invest primarily (under
normal market circumstances, at least
65% of its total assets) in investmentgrade Fixed Income Instruments, but
may invest up to 10% of its total assets
in high-yield Fixed Income Instruments
5 See Commentary .06 to NYSE Arca Equities
Rule 8.600. In the event (a) the Adviser or any subadviser becomes newly affiliated with a brokerdealer, or (b) any new manager, adviser, or subadviser becomes affiliated with a broker-dealer, it
will implement a fire wall with respect to such
broker-dealer regarding access to information
concerning the composition and/or changes to the
portfolio, and will be subject to procedures
designed to prevent the use and dissemination of
material non-public information regarding such
portfolio.
6 The term ‘‘under normal market circumstances’’
includes, but is not limited to, the absence of
extreme volatility or trading halts in the fixed
income markets or the financial markets generally;
operational issues causing dissemination of
inaccurate market information; or force majeure
type events such as systems failure, natural or manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar
intervening circumstance.
7 ‘‘Fixed Income Instruments’’ on which the Fund
will focus will be: Debt securities issued or
guaranteed by the U.S. Government, its agencies or
government-sponsored enterprises (‘‘U.S.
Government Securities’’); corporate debt securities
of U.S. and non-U.S. issuers, including convertible
securities and corporate commercial paper;
mortgage-backed and other asset-backed securities;
inflation-indexed bonds issued both by
governments and corporations; structured notes,
including hybrid or ‘‘indexed’’ securities and eventlinked bonds; bank capital and trust preferred
securities; loan participations and assignments;
delayed funding loans and revolving credit
facilities; bank certificates of deposit, fixed time
deposits and bankers’ acceptances; repurchase
agreements on Fixed Income Instruments and
reverse repurchase agreements on Fixed Income
Instruments; debt securities issued by states or local
governments and their agencies, authorities and
other government-sponsored enterprises;
obligations of non-U.S. governments or their
subdivisions, agencies and government-sponsored
enterprises; and obligations of international
agencies or supranational entities.
Securities issued by U.S. Government agencies or
government-sponsored enterprises may not be
guaranteed by the U.S. Treasury.
E:\FR\FM\09FEN1.SGM
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]]>Agencies
[Federal Register Volume 77, Number 27 (Thursday, February 9, 2012)]
[Notices]
[Pages 6833-6850]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-2994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66320; File No. SR-NASDAQ-2012-013]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change Relating to the Adoption of
Listing Standards for Certain Securities
February 3, 2012.
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 January 20, 2012, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\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
The Exchange proposes to adopt rules applicable to the
qualification, listing, trading, and delisting of certain securities on
NASDAQ (``Listing Rules''). Specifically, NASDAQ proposes to adopt
Listing Rules applicable to the following securities: Equity Index-
Linked Securities, Commodity-Linked Securities,\3\ Fixed Income Index-
Linked Securities, Futures-Linked Securities, Multifactor Index-Linked
Securities; Index-Linked Exchangeable Notes; Equity Gold Shares; Trust
Certificates; Commodity-Based Trust Shares; Currency Trust Shares;
Commodity Index Trust Shares; Commodity Futures Trust Shares;
Partnership Units; Trust Units; Managed
[[Page 6834]]
Trust Securities; and Currency Warrants.
---------------------------------------------------------------------------
\3\ NASDAQ Rules 5710(g) and (h) currently include initial
listing standards applicable to Equity Index-Linked Securities and
Commodity-Linked Securities. NASDAQ proposes to re-number the
existing rule text in Rules 5710(g) and (h), and to adopt continuing
listing standards applicable to Equity Index-Linked Securities and
Commodity-Linked Securities, in proposed Rules 5710(k)(i) and (ii).
---------------------------------------------------------------------------
The proposal would adopt listing standards based on the relevant
listing standards of the NYSE Arca, Inc. (``NYSEArca'') Equities Rules,
as set forth below. The text of the proposed rule change is available
on the Exchange's Web site at https://www.nasdaq.cchwallstreet.com, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to adopt listing
standards for each of the products specified above. The Section 5000
series of the NASDAQ rules govern the qualification, listing and
delisting of securities on the NASDAQ Stock Market. Section 5000 also
sets forth, among other things, definitions,\4\ NASDAQ's regulatory
authority to list and maintain securities,\5\ general procedures and
prerequisites for initial and continued listing on the NASDAQ Stock
Market,\6\ and, most significantly to the instant proposed rule change,
``Other Securities,'' \7\ which govern, without limitation, listing and
qualification rules applicable to Exchange Traded Funds, Portfolio
Depository Receipts and Index Fund Shares. The proposed amendments to
Rule 5710, Securities Linked to the Performance of Indexes and
Commodities (Including Currencies), would add continuing listing
standards for Equity Index-Linked Securities and Commodity-Linked
Securities, and initial and continuing listing standards for fixed
income index-linked securities (``Fixed Income Index-Linked
Securities''), futures-linked securities (``Futures-Linked
Securities'') and multifactor index-linked securities (``Multifactor
Index-Linked Securities'' and, together with Equity Index-Linked
Securities, Commodity-Linked Securities, Fixed Income Index-Linked
Securities and Futures-Linked Securities, ``Linked Securities'') to the
rule.
---------------------------------------------------------------------------
\4\ See Section 5005 of the NASDAQ Rules.
\5\ See Section 5100 of the NASDAQ Rules.
\6\ See Section 5200 of the NASDAQ Rules.
\7\ See Section 5700 of the NASDAQ Rules.
---------------------------------------------------------------------------
Proposed new Rule 5711, Trading of Certain Derivative Securities,
would include listing standards for Index-Linked Exchangeable Notes,
Equity Gold Shares, Trust Certificates, Commodity-Based Trust Shares,
Currency Trust Shares, Commodity Index Trust Shares, Commodity Futures
Trust Shares, Partnership Units, Trust Units, Managed Trust Securities,
and Currency Warrants.
The instant proposed rule change is intended to define the specific
products (see above) that NASDAQ intends to list and trade, and the
listing and qualification requirements for each such product.
Introductory Paragraphs to Rule 5710
The proposed amendments to Rule 5710 would state that NASDAQ will
consider for listing and trading the Linked Securities set forth in the
introductory paragraphs of the rule. These paragraphs describe the
basis for the payment at maturity of the various securities, which is
the performance of ``Reference Assets,'' as defined below.
Specifically:
Equity Index-Linked Securities are securities that provide
for the payment at maturity of a cash amount based on the performance
of an underlying equity index or indexes (``Equity Reference Asset'').
The payment at maturity with respect to Commodity-Linked
Securities is based on one or more physical Commodities or Commodity
futures, options or other Commodity derivatives, Commodity-Related
Securities, or a basket or index of any of the foregoing (``Commodity
Reference Asset''). The terms ``Commodity'' and ``Commodity-Related
Security'' are defined in Rule 4630.
The payment at maturity with respect to Fixed Income
Index-Linked Securities is based on the performance of one or more
indexes or portfolios of notes, bonds, debentures or evidence of
indebtedness that include, but are not limited to, U.S. Department of
the Treasury securities (``Treasury Securities''), government-sponsored
entity securities (``GSE Securities''), municipal securities, trust
preferred securities, supranational debt and debt of a foreign country
or a subdivision thereof or a basket or index of any of the foregoing
(``Fixed Income Reference Asset'').
The payment at maturity with respect to Futures-Linked
Securities is based on the performance of an index of (a) futures on
Treasury Securities, GSE Securities, supranational debt and debt of a
foreign country or a subdivision thereof, or options or other
derivatives on any of the foregoing; or (b) interest rate futures or
options or derivatives on the foregoing in this subparagraph (b); or
(c) CBOE Volatility Index (VIX) Futures (``Futures Reference Asset'').
The payment at maturity with respect to Multifactor Index-
Linked Securities is based on the performance of any combination of two
or more Equity Reference Assets, Commodity Reference Assets, Fixed
Income Reference Assets or Futures Reference Assets (``Multifactor
Reference Asset,'' and together with Equity Reference Assets, Commodity
Reference Assets, Fixed Income Reference Assets and Futures Reference
Assets, ``Reference Assets''). A Multifactor Reference Asset may
include as a component a notional investment in cash or a cash
equivalent based on a widely accepted overnight loan interest rate,
LIBOR, Prime Rate, or an implied interest rate based on observed market
spot and foreign currency forward rates.
Linked Securities may or may not provide for the repayment of the
original principal investment amount. NASDAQ may submit a rule filing
pursuant to Section 19(b)(2) of the Act to permit the listing and
trading of Linked Securities that do not otherwise meet the standards
set forth in Rule 5710.
Technical Changes to Rule 5710
NASDAQ is not proposing any amendments to Rules 5710(a)-(f), and
such provisions would apply to all Linked Securities.\8\ Additionally,
[[Page 6835]]
NASDAQ proposes to re-number the current text of Rule 5710 by deleting
current Rules 5710(g) and (h) and moving the text of these two sections
into proposed Rules 5710 (k)(i) and (ii).\9\ In addition, NASDAQ is
proposing to re-number the remaining existing sections of Rule 5710,
and to amend references and defined terms in such sections such that
they would apply to all Linked Securities.
---------------------------------------------------------------------------
\8\ Current Rules 5710(a)-(f) state:
(a) Both the issue and the issuer of such security meet the
criteria for other securities set forth in Rule 5730(a), except that
if the security is traded in $1,000 denominations or is redeemable
at the option of holders thereof on at least a weekly basis, then no
minimum number of holders and no minimum public distribution of
trading units shall be required.
(b) The issue has a term of not less than one (1) year and not
greater than thirty (30) years.
(c) The issue must be the non-convertible debt of the Company.
(d) The payment at maturity may or may not provide for a
multiple of the direct or inverse performance of an underlying
index, indexes or Reference Asset; however, in no event will a loss
(negative payment) at maturity be accelerated by a multiple that
exceeds twice the performance of an underlying index, indexes or
Reference Asset.
(e) The Company will be expected to have a minimum tangible net
worth in excess of $250,000,000 and to exceed by at least 20% the
earnings requirements set forth in Rule 5405(b)(1)(A). In the
alternative, the Company will be expected: (i) To have a minimum
tangible net worth of $150,000,000 and to exceed by at least 20% the
earnings requirement set forth in Rule 5405(b)(1)(A), and (ii) not
to have issued securities where the original issue price of all the
Company's other index-linked note offerings (combined with index-
linked note offerings of the Company's affiliates) listed on a
national securities exchange exceeds 25% of the Company's net worth.
(f) The Company is in compliance with Rule 10A-3 under the Act.
\9\ See supra note 3.
---------------------------------------------------------------------------
Linked Securities
Proposed Rule 5710(k) would adopt listing standards for the various
Linked Securities.
Equity Index-Linked Securities
Initial Listing Criteria
Proposed Rule 5710(k)(i)(A) would set forth the initial listing
criteria for Equity Index-Linked Securities found in current Rule
5710(g), which would be deleted and replaced in proposed Rule
5710(k)(i)(A). Specifically:
In the case of an Equity Index-Linked Security, each underlying
index is required to have at least ten (10) component securities. In
addition, the index or indexes to which the security is linked shall
either: (1) Have been reviewed and approved for the trading of options
or other derivatives by the Commission under Section 19(b)(2) of the
Act and rules thereunder, and the conditions set forth in the
Commission's approval order, including comprehensive surveillance
sharing agreements for non-U.S. stocks, continue to be satisfied, or
(2) the index or indexes meet the following criteria:
Each component security has a minimum market value of at
least $75 million, except that for each of the lowest weighted
component securities in the index that in the aggregate account for no
more than 10% of the weight of the index, the market value can be at
least $50 million;
Each component security shall have trading volume in each
of the last six months of not less than 1,000,000 shares, except that
for each of the lowest weighted component securities in the index that
in the aggregate account for no more than 10% of the weight of the
index, the trading volume shall be at least 500,000 shares in each of
the last six months;
Indexes based upon the equal-dollar or modified equal-
dollar weighting method will be rebalanced at least semiannually;
In the case of a capitalization-weighted or modified
capitalization-weighted index, the lesser of the five highest weighted
component securities in the index or the highest weighted component
securities in the index that in the aggregate represent at least 30% of
the total number of component securities in the index, each have an
average monthly trading volume of at least 2,000,000 shares over the
previous six months;
No underlying component security will represent more than
25% of the weight of the index, and the five highest weighted component
securities in the index do not in the aggregate account for more than
50% of the weight of the index (60% for an index consisting of fewer
than 25 component securities);
90% of the index's numerical value and at least 80% of the
total number of component securities will meet the then current
criteria for standardized option trading on a national securities
exchange or a national securities association, provided, however, that
an index will not be subject to this requirement if (a) no underlying
component security represents more than 10% of the dollar weight of the
index and (b) the index has a minimum of 20 components; and
All component securities shall be either (A) securities
(other than securities of a foreign issuer and American Depository
Receipts (``ADRs'')) that are (i) issued by a 1934 Act reporting
company or by an investment company registered under the Investment
Company Act of 1940 that, in each case, has securities listed on a
national securities exchange and (ii) an ``NMS stock'' (as defined in
Rule 600 of Regulation NMS under the Act), or (B) securities of a
foreign issuer or ADRs, provided that securities of a foreign issuer
(including when they underlie ADRs) whose primary trading market
outside the United States is not a member of the Intermarket
Surveillance Group (``ISG'') or a party to a comprehensive surveillance
sharing agreement with NASDAQ will not in the aggregate represent more
than 20% of the dollar weight of the index.
Continued Listing Criteria
Rule 5710(k)(i)(B) would adopt continued listing criteria for
Equity Index-Linked Securities. Specifically, NASDAQ will commence
delisting or removal proceedings (unless the Commission has approved
the continued trading of the subject Equity Index-Linked Security), if
any of the standards set forth above are not continuously maintained,
except that:
The criteria that no single component represent more than
25% of the dollar weight of the index and the five highest dollar
weighted components in the index cannot represent more than 50% (or 60%
for indexes with less than 25 components) of the dollar weight of the
index, need only be satisfied at the time the index is rebalanced; and
Component stocks that in the aggregate account for at
least 90% of the weight of the index each shall have a minimum global
monthly trading volume of 500,000 shares, or minimum global notional
volume traded per month of $12,500,000, averaged over the last six
months.
In connection with an Equity Index-Linked Security that is based on
an index that has been reviewed and approved for the trading of options
or other derivatives by the Commission under Section 19(b)(2) of the
Act and rules thereunder and the conditions set forth in the
Commission's approval order, NASDAQ will commence delisting or removal
proceedings (unless the Commission has approved the continued trading
of the subject Equity Index-Linked Security) if an underlying index or
indexes fails to satisfy the maintenance standards or conditions for
such index or indexes as set forth by the Commission in its order under
Section 19(b)(2) of the Act approving the index or indexes for the
trading of options or other derivatives.
Additionally, NASDAQ will commence delisting or removal proceedings
(unless the Commission has approved the continued trading of the
subject Equity Index-Linked Security), under any of the following
circumstances:
If the aggregate market value or the principal amount of
the Equity Index-Linked Securities publicly held is less than $400,000;
If the value of the index or composite value of the
indexes is no longer calculated or widely disseminated on at least a
15-second basis with respect to indexes containing only securities
listed on a national securities exchange, or on at least a 60-second
basis with respect to indexes containing foreign country securities,
provided, however, that, if the official index value does not change
during some or all of the period when trading
[[Page 6836]]
is occurring on NASDAQ (for example, for indexes of foreign country
securities, because of time zone differences or holidays in the
countries where such indexes' component stocks trade) then the last
calculated official index value must remain available throughout NASDAQ
trading hours; or
If such other event shall occur or condition exists which
in the opinion of NASDAQ makes further dealings on NASDAQ inadvisable.
Equity-Linked Indexes will be rebalanced at least annually.
The proposed rule change relating to Equity-Linked Securities is
based on NYSEArca Equities Rule 5.2(j)(6)(B)(I).
Commodity-Linked Securities
Proposed Rule 5710(k)(ii) would adopt the initial listing criteria
(found in current Rule 5710(h), which would be deleted and replaced in
proposed Rule 5710(k)(ii)(A)) and continued listing criteria for
Commodity-Linked Securities.
Initial Listing Criteria
The Reference Asset must meet one of the following criteria:
The Reference Asset to which the security is linked shall
have been reviewed and approved for the trading of Commodity-Related
Securities or options or other derivatives by the Commission under
Section 19(b)(2) of the Act and rules thereunder and the conditions set
forth in the Commission's approval order, including with respect to
comprehensive surveillance sharing agreements, continue to be
satisfied; or
The pricing information for each component of a Reference
Asset other than a Currency must be derived from a market which is an
ISG member or affiliate or with which NASDAQ has a comprehensive
surveillance sharing agreement. Notwithstanding the previous sentence,
pricing information for gold and silver may be derived from the London
Bullion Market Association. The pricing information for each component
of a Reference Asset that is a Currency must be either: (1) The
generally accepted spot price for the currency exchange rate in
question; or (2) derived from a market of which (a) is an ISG member or
affiliate or with which NASDAQ has a comprehensive surveillance sharing
agreement and (b) is the pricing source for a currency component of a
Reference Asset that has previously been approved by the Commission. A
Reference Asset may include components representing not more than 10%
of the dollar weight of such Reference Asset for which the pricing
information is derived from markets that do not meet the requirements
of subparagraph (2) of the proposed rule; provided, however, that no
single component subject to this exception exceeds 7% of the dollar
weight of the Reference Asset. The term ``Currency,'' as used in the
proposed rule, means one or more currencies, or currency options,
futures, or other currency derivatives, Commodity-Related Securities if
their underlying Commodities are currencies or currency derivatives, or
a basket or index of any of the foregoing.
Continued Listing Standards
Proposed Rule 5710(k)(ii)(B) would establish continued listing
criteria for Commodity-Linked Securities. Specifically, NASDAQ will
commence delisting or removal proceedings if any of the initial listing
criteria described above are not continuously maintained. Additionally,
NASDAQ will also commence delisting or removal proceedings under any of
the following circumstances:
If the aggregate market value or the principal amount of
the Commodity-Linked Securities publicly held is less than $400,000;
If the value of the Commodity Reference Asset is no longer
calculated or available and a new Commodity Reference Asset is
substituted, unless the new Commodity Reference Asset meets the
requirements of the proposed rule; or
If such other event shall occur or condition exists which
in the opinion of NASDAQ makes further dealings on NASDAQ inadvisable.
The proposed rule change relating to Commodity-Linked Securities is
based on NYSEArca Equities Rule 5.2(j)(6)(B)(II).
Fixed Income Index-Linked Securities
Proposed Rule 5710(k)(iii) would set forth the listing criteria for
Fixed Income Index-Linked Securities.
Initial Listing Standards
Proposed Rule 5710(k)(iii)(A) states that either the Fixed Income
Reference Asset to which the security is linked shall have been
reviewed and approved for the trading of options, Index Fund Shares, or
other derivatives by the Commission under Section 19(b)(2) of the
Securities Exchange Act of 1934 and rules thereunder and the conditions
set forth in the Commission's approval order continue to be satisfied
or the issue must meet the following initial listing criteria:
Components of the Fixed Income Reference Asset that in the
aggregate account for at least 75% of the weight of the Fixed Income
Reference Asset must each have a minimum original principal amount
outstanding of $100 million or more;
A component of the Fixed Income Reference Asset may be a
convertible security, however, once the convertible security component
converts to the underlying equity security, the component is removed
from the Fixed Income Reference Asset;
No component of the Fixed Income Reference Asset
(excluding Treasury Securities and GSE Securities) will represent more
than 30% of the dollar weight of the Fixed Income Reference Asset, and
the five highest dollar weighted components in the Fixed Income
Reference Asset will not in the aggregate account for more than 65% of
the dollar weight of the Fixed Income Reference Asset;
An underlying Fixed Income Reference Asset (excluding one
consisting entirely of exempted securities) must include a minimum of
13 non-affiliated issuers; and
Component securities that in the aggregate account for at
least 90% of the dollar weight of the Fixed Income Reference Asset must
be from one of the following: (a) Issuers that are required to file
reports pursuant to Sections 13 and 15(d) of the Act; or (b) issuers
that have a worldwide market value of outstanding common equity held by
non-affiliates of $700 million or more; or (c) issuers that have
outstanding securities that are notes, bonds, debentures, or evidence
of indebtedness having a total remaining principal amount of at least
$1 billion; or (d) exempted securities as defined in Section 3(a)(12)
of the Act, or (e) issuers that are a government of a foreign country
or a political subdivision of a foreign country.
In addition, the value of the Fixed Income Reference Asset must be
widely disseminated to the public by one or more major market vendors
at least once per business day.
Continued Listing Standards
Proposed Rule 5710(k)(iii)(C) would provide that NASDAQ will
commence delisting or removal proceedings if any of the initial listing
criteria described above are not continuously maintained, and that
NASDAQ will also commence delisting or removal proceedings:
If the aggregate market value or the principal amount of
the Fixed Income Index-Linked Securities publicly held is less than
$400,000;
If the value of the Fixed Income Reference Asset is no
longer calculated or available and a new Fixed Income Reference Asset
is substituted, unless the new Fixed Income Reference Asset
[[Page 6837]]
meets the requirements of proposed Rule 5710(k); or
If such other event shall occur or condition exists which
in the opinion of NASDAQ makes further dealings inadvisable.
The proposed rule change relating to Fixed-Income Linked Securities
is based on NYSEArca Equities Rule 5.2(j)(6)(B)(IV).
Futures-Linked Securities
Proposed Rule 5710(k)(iv) would establish listing standards for
Futures-Linked Securities.
Initial Listing Standards
Proposed Rule 5710(k)(iv)(A) states that the issue must meet either
of the following the initial listing standards:
The Futures Reference Asset to which the security is
linked shall have been reviewed and approved for the trading of
Futures-Linked Securities or options or other derivatives by the
Commission under Section 19(b)(2) of the Act and rules thereunder and
the conditions set forth in the Commission's approval order, including
with respect to comprehensive surveillance sharing agreements, continue
to be satisfied, or
The pricing information for components of a Futures
Reference Asset must be derived from a market which is an ISG member or
affiliate or with which NASDAQ has a comprehensive surveillance sharing
agreement. A Futures Reference Asset may include components
representing not more than 10% of the dollar weight of such Futures
Reference Asset for which the pricing information is derived from
markets that do not meet the requirements of proposed Rule
5710(k)(iv)(A)(2); provided, however, that no single component subject
to this exception exceeds 7% of the dollar weight of the Futures
Reference Asset.
In addition, the issue must meet both of the following initial
listing criteria:
The value of the Futures Reference Asset must be
calculated and widely disseminated by one or more major market data
vendors on at least a 15-second basis during the Regular Market
Session, as defined in Rule 4120; and
In the case of Futures-Linked Securities that are
periodically redeemable, the value of a share of each series
(``Intraday Indicative Value'') of the subject Futures-Linked
Securities must be calculated and widely disseminated by NASDAQ or one
or more major market data vendors on at least a 15-second basis during
the Regular Market Session (as defined in Rule 4120).
Continued Listing Standards
Proposed Rule 5710(k)(iv)(C) states that NASDAQ will commence
delisting or removal proceedings if any of the initial listing criteria
described above are not continuously maintained, and that NASDAQ will
also commence delisting or removal proceedings under any of the
following circumstances:
If the aggregate market value or the principal amount of
the Futures-Linked Securities publicly held is less than $400,000;
If the value of the Futures Reference Asset is no longer
calculated or available and a new Futures Reference Asset is
substituted, unless the new Futures Reference Asset meets the
requirements of proposed Rule 5710(k); or
If such other event shall occur or condition exists which
in the opinion of NASDAQ makes further dealings on NASDAQ inadvisable.
The proposed rule change relating to Futures-Linked Securities is
based on NYSEArca Equities Rule 5.2(j)(6)(B)(V).
Multifactor Index-Linked Securities
Proposed Rule 5710(k)(v) would govern the listing standards for
Multifactor Index-Linked Securities.
Initial Listing Standards
Proposed Rule 5710(k)(v)(A) states that the issue must meet one of
the following initial listing standards:
Each component of the Multifactor Reference Asset to which
the security is linked shall have been reviewed and approved for the
trading of either options, Index Fund Shares, or other derivatives
under Section 19(b)(2) of the Act and rules thereunder and the
conditions set forth in the Commission's approval order continue to be
satisfied; or
Each Reference Asset included in the Multifactor Reference
Asset must meet the applicable initial and continued listing criteria
set forth in the relevant subsection of proposed Rule 5710(k).
In addition to one of the initial listing standards set forth
above, proposed Rule 5710(k)(v)(B) would state that the issue must meet
both of the following initial listing criteria:
The value of the Multifactor Reference Asset must be
calculated and widely disseminated to the public on at least a 15-
second basis during the time the Multifactor Index-Linked Security
trades on NASDAQ; and
In the case of Multifactor Index-Linked Securities that
are periodically redeemable, the indicative value of the Multifactor
Index-Linked Securities must be calculated and widely disseminated by
one or more major market data vendors on at least a 15-second basis
during the time the Multifactor Index-Linked Securities trade on
NASDAQ.
Continued Listing Criteria
Proposed Rule 5710(k)(v)(C) states that NASDAQ will commence
delisting or removal proceedings:
If any of the initial listing criteria described above are
not continuously maintained;
If the aggregate market value or the principal amount of
the Multifactor Index-Linked Securities publicly held is less than
$400,000;
If the value of the Multifactor Reference Asset is no
longer calculated or available and a new Multifactor Reference Asset is
substituted, unless the new Multifactor Reference Asset meets the
requirements of proposed Rule 5710(k); or
If such other event shall occur or condition exists which
in the opinion of NASDAQ makes further dealings on NASDAQ inadvisable.
The proposed rule change relating to Multifactor Index-Linked
Securities is based on NYSEArca Equities Rule 5.2(j)(6)(B)(VI).
Regulatory Requirements for Registered Market Makers in Linked
Securities
Commentary .01 to proposed Rule 5710(k) would establish certain
regulatory requirements for registered Market Makers in Linked
Securities. Specifically, the registered Market Maker in Linked
Securities must file with NASDAQ, in a manner prescribed by NASDAQ, and
keep current a list identifying all accounts for trading in the
Reference Asset components, the commodities, currencies or futures
underlying the Reference Asset components, or any derivative
instruments based on the Reference Asset or based on any Reference
Asset component or any physical commodity, currency or futures
underlying a Reference Asset component, which the registered Market
Maker may have or over which it may exercise investment discretion. No
registered Market Maker in Linked Securities would be permitted to
trade in the Reference Asset components, the commodities, currencies or
futures underlying the Reference Asset components, or any derivative
instruments based on the Reference Asset or based on any Reference
Asset component or any physical commodity, or futures currency
underlying a Reference Asset component, in an account in which a
registered Market Maker, directly or
[[Page 6838]]
indirectly, controls trading activities, or has a direct interest in
the profits or losses thereof, which has not been reported to NASDAQ as
required by the proposed Rule.
In addition to the existing obligations under NASDAQ rules
regarding the production of books and records,\10\ the registered
Market Maker in Linked Securities would be required to make available
to NASDAQ such books, records or other information pertaining to
transactions by such entity or any limited partner, officer or approved
person thereof, registered or nonregistered employee affiliated with
such entity for its or their own accounts in the Reference Asset
components, the commodities, currencies or futures underlying the
Reference Asset components, or any derivative instruments based on the
Reference Asset or based on any Reference Asset component or any
physical commodity, currency or futures underlying a Reference Asset
component, as may be requested by NASDAQ.
---------------------------------------------------------------------------
\10\ See, e.g., NASDAQ Rule 4625.
---------------------------------------------------------------------------
The proposed rule change relating to regulatory requirements for
registered Market Makers in Linked Securities is based on NYSEArca
Equities Rule 5.2(j)(6), Commentary .01.
Proposed Rule 5711--Trading of Certain Derivative Securities
NASDAQ proposes to adopt new Rule 5711, Trading of Certain
Derivative Securities, which would set forth listing standards for the
securities described below.
Index-Linked Exchangeable Notes
Proposed Rule 5711(a) would adopt listing standards for Index-
Linked Exchangeable Notes.
Description
Index-Linked Exchangeable Notes are exchangeable debt securities
that are exchangeable at the option of the holder (subject to the
requirement that the holder in most circumstances exchange a specified
minimum amount of notes), on call by the issuer, or at maturity for a
cash amount (``Cash Value Amount'') based on the reported market prices
of the underlying stocks of an underlying index. Each Index-Linked
Exchangeable Note is intended to provide investors with an instrument
that closely tracks the underlying index. Notwithstanding that the
notes are linked to an index, they will trade as a single security.
Initial Listing Standards
Index-Linked Exchangeable Notes will be considered for listing and
trading by NASDAQ pursuant to Rule 19b-4(e) under the Act,\11\
provided:
---------------------------------------------------------------------------
\11\ 17 CFR 240.19b-4(e).
---------------------------------------------------------------------------
Both the issue and the issuer of such security meet the
requirements of Rule 5730, Listing Requirements for Securities Not
Specified Above (Other Securities), except that the minimum public
distribution shall be 150,000 notes with a minimum of 400 public note-
holders, except, if traded in thousand dollar denominations or
redeemable at the option of the holders thereof on at least a weekly
basis, then no minimum public distribution and no minimum number of
holders.
The issue has a minimum term of one year.
The issuer will be expected to have a minimum tangible net
worth in excess of $250,000,000, and to otherwise substantially exceed
the earnings requirements set forth in Rule 5405(b). In the
alternative, the issuer will be expected: (A) to have a minimum
tangible net worth of $150,000,000 and to otherwise substantially
exceed the earnings requirements set forth in Rule 5405(b); and (B) not
to have issued Index-Linked Exchangeable Notes where the original issue
price of all the issuer's other Index-Linked Exchangeable Note
offerings (combined with other index-linked exchangeable note offerings
of the issuer's affiliates) listed on a national securities exchange
exceeds 25% of the issuer's net worth.
The index to which an exchangeable-note is linked shall
either be (A) indices that have been created by a third party and been
reviewed and have been approved for the trading of options or other
derivatives securities (``Third-Party Index'') either by the Commission
under Section 19(b)(2) of the Act and rules thereunder or by NASDAQ
under rules adopted pursuant to Rule 19b-4(e); or (B) indices which the
issuer has created and for which NASDAQ will have obtained approval
from either the Commission pursuant to Section 19(b)(2) and rules
thereunder or from NASDAQ under rules adopted pursuant to Rule 19b-4(e)
(``Issuer Index''). The Issuer Indices and their underlying securities
must meet one of the following: (A) The procedures and criteria set
forth in NOM Rules, Chapter XIV, Section 6(b) and (c), or (B) the
criteria set forth in Rules 5715(b)(3) and (4), the index concentration
limits set forth in NOM Rule Chapter XIV, Section 6, and NOM Rule
Chapter XIV, Section 6(b)(12) insofar as it relates to NOM Rule Chapter
XIV, Section 6(b)(6). Index-Linked Exchangeable Notes will be treated
as equity instruments.
Continued Listing Standards
Beginning twelve months after the initial issuance of a series of
Index-Linked Exchangeable Notes, NASDAQ will consider the suspension of
trading in or removal from listing of that series of Index-Linked
Exchangeable Notes under any of the following circumstances:
If the series has fewer than 50,000 notes issued and
outstanding;
If the market value of all Index-Linked Exchangeable Notes
of that series issued and outstanding is less than $1,000,000; or
If such other event shall occur or such other condition
exists which in the opinion of NASDAQ makes further dealings of NASDAQ
inadvisable.
The proposed rule change relating to Index-Linked Exchangeable
Notes is based on NYSEArca Equities Rule 5.2(j)(4).
Equity Gold Shares
Description
Proposed Rule 5711(b) would apply to Equity Gold Shares that
represent units of fractional undivided beneficial interest in, and
ownership of, the Equity Gold Trust. While Equity Gold Shares are not
technically ``Index Fund Shares,'' and thus are not covered by NASDAQ
Rule 5705, all other NASDAQ rules that reference ``Index Fund Shares''
shall also apply to Equity Gold Shares.
Applicability
Except to the extent that specific provisions in proposed Rule
5711(b) govern, or unless the context otherwise requires, the
provisions of all other NASDAQ Rules and policies would be applicable
to the trading of Equity Gold Shares on NASDAQ. The provisions set
forth in proposed Rule 5711(d) relating to Commodity-Based Trust Shares
would also apply to Equity Gold Shares.
The proposed rule change relating to Equity Gold Shares is based on
NYSEArca Equities Rule 5.2(j)(5).
Trust Certificates
Proposed Rule 5711(c) would govern the listing standards applicable
to Trust Certificates. NASDAQ will consider for trading, whether by
listing or pursuant to unlisted trading privileges, Trust Certificates.
Description
Trust Certificates represent an interest in a special purpose trust
(``Trust'') created pursuant to a trust agreement. The Trust will only
issue Trust Certificates. Trust Certificates may or may not provide for
the repayment of
[[Page 6839]]
the original principal investment amount. Trust Certificates pay an
amount at maturity which is based upon the performance of specified
assets as set forth below:
An underlying index or indexes of equity securities
(``Equity Reference Asset'');
Instruments that are direct obligations of the issuing
company, either exercisable throughout their life (i.e., American
style) or exercisable only on their expiration date (i.e., European
style), entitling the holder to a cash settlement in U.S. dollars to
the extent that the foreign or domestic index has declined below (for a
put warrant) or increased above (for a call warrant) the pre-stated
cash settlement value of the index (``Index Warrants''); or
A combination of two or more Equity Reference Assets or
Index Warrants.
NASDAQ will file separate proposals under Section 19(b) of the Act
before trading, either by listing or pursuant to unlisted trading
privileges, Trust Certificates.
Continued Listing Standards
Commentary .01 to proposed Rule 5711(c) would state that NASDAQ
will commence delisting or removal proceedings with respect to an issue
of Trust Certificates (unless the Commission has approved the continued
trading of such issue), under any of the following circumstances:
If the aggregate market value or the principal amount of
the securities publicly held is less than $400,000;
If the value of the index or composite value of the
indexes is no longer calculated or widely disseminated on at least a
15-second basis with respect to indexes containing only securities
listed on a national securities exchange, or on at least a 60-second
basis with respect to indexes containing foreign country securities;
provided, however, that, if the official index value does not change
during some or all of the period when trading is occurring on the
NASDAQ Stock Market (for example, for indexes of foreign country
securities, because of time zone differences or holidays in the
countries where such indexes' component stocks trade) then the last
calculated official index value must remain available throughout NASDAQ
trading hours; or
If such other event shall occur or condition exists which
in the opinion of NASDAQ makes further dealings on NASDAQ inadvisable.
Other Provisions
Proposed Commentary .02 to Rule 5711(c) would provide that the
stated term of the Trust shall be as stated in the Trust prospectus.
However, a Trust may be terminated under such earlier circumstances as
may be specified in the Trust prospectus.
Proposed Commentary .03 to Rule 5711(c) would provide that the
trustee of a Trust must be a trust company or banking institution
having substantial capital and surplus and the experience and
facilities for handling corporate trust business. In cases where, for
any reason, an individual has been appointed as trustee, a qualified
trust company or banking institution must be appointed co-trustee. No
change is to be made in the trustee of a listed issue without prior
notice to and approval of NASDAQ.
Proposed Commentary .04 to Rule 5711(c) would provide that voting
rights will be as set forth in the applicable Trust prospectus.
Proposed Commentary .05 to Rule 5711(c) would provide that NASDAQ
will implement written surveillance procedures for Trust Certificates.
Proposed Commentary .06 to Rule 5711(c) would provide that the
Trust Certificates will be subject to NASDAQ's equity trading rules.
Proposed Commentary .07 to Rule 5711(c) would provide that prior to
the commencement of trading of a particular Trust Certificates listing
pursuant to this Rule, NASDAQ will evaluate the nature and complexity
of the issue and, if appropriate, distribute a circular to Members
providing guidance regarding compliance responsibilities (including
suitability recommendations and account approval) when handling
transactions in Trust Certificates.
Proposed Commentary .08 to Rule 5711(c) would provide that Trust
Certificates may be exchangeable at the option of the holder into
securities that participate in the return of the applicable underlying
asset. In the event that the Trust Certificates are exchangeable at the
option of the holder and contain an Index Warrant, then a Member must
ensure that the Member's account is approved for options trading in
accordance with the rules of the NASDAQ Options Market (``NOM'') in
order to exercise such rights.
Proposed Commentary .09 to Rule 5711(c) would provide that Trust
Certificates may pass-through periodic payments of interest and
principle of the underlying securities.
Proposed Commentary .10 to Rule 5711(c) would provide that the
Trust payments may be guaranteed pursuant to a financial guaranty
insurance policy which may include swap agreements.
Proposed Commentary .11 to Rule 5711(c) would provide that the
Trust Certificates may be subject to early termination or call
features.
The proposed rule change relating to Trust Certificates is based on
NYSEArca Equities Rule 5.2(j)(7).
Commodity-Based Trust Shares
Proposed Rule 5711(d) would permit the listing and trading, or
trading pursuant to unlisted trading privileges, of Commodity-Based
Trust Shares on NASDAQ. Proposed Rule 5711(d) would be applicable only
to Commodity-Based Trust Shares. Except to the extent inconsistent with
this Rule, or unless the context otherwise requires, the provisions of
the trust issued receipts rules, Bylaws, and all other rules and
procedures of the Board of Directors shall be applicable to the trading
on NASDAQ of such securities. Commodity-Based Trust Shares are included
within the definition of ``security'' or ``securities'' as such terms
are used in the Bylaws and Rules of NASDAQ.
Description
``Commodity-Based Trust Shares,'' as defined in proposed Rule
5711(d)(iii)(A), means a security (1) that is issued by a Trust that
holds a specified commodity deposited with the Trust; (2) that is
issued by such Trust in a specified aggregate minimum number in return
for a deposit of a quantity of the underlying commodity; and (3) that,
when aggregated in the same specified minimum number, may be redeemed
at a holder's request by such Trust which will deliver to the redeeming
holder the quantity of the underlying commodity. Proposed Rule
5711(d)(iii)(B) states that the term ``commodity'' is defined in
Section 1(a)(4) of the Commodity Exchange Act.
Proposed Rule 5711(d)(iv) states that NASDAQ may trade, either by
listing or pursuant to unlisted trading privileges, Commodity-Based
Trust Shares based on an underlying commodity. Each issue of a
Commodity-Based Trust Share will be designated as a separate series and
will be identified by a unique symbol.
Initial Listing Standards
Proposed Rule 5711(d)(v)(A) states that NASDAQ will establish a
minimum number of Commodity-Based Trust Shares required to be
outstanding at the time of commencement of trading on NASDAQ.
[[Page 6840]]
Continued Listing Standards
Proposed Rule 5711(d)(v)(B) provides that following the initial 12
month period following commencement of trading on NASDAQ of Commodity-
Based Trust Shares, NASDAQ will consider the suspension of trading in
or removal from listing of such series under any of the following
circumstances if:
The Trust has more than 60 days remaining until
termination and there are fewer than 50 record and/or beneficial
holders of Commodity-Based Trust Shares for 30 or more consecutive
trading days;
The Trust has fewer than 50,000 receipts issued and
outstanding;
The market value of all receipts issued and outstanding is
less than $1,000,000;
The value of the underlying commodity is no longer
calculated or available on at least a 15-second delayed basis from a
source unaffiliated with the sponsor, Trust, custodian or NASDAQ or
NASDAQ stops providing a hyperlink on its Web site to any such
unaffiliated commodity value;
The Intraday Indicative Value \12\ is no longer made
available on at least a 15-second delayed basis; or
---------------------------------------------------------------------------
\12\ The Intraday Indicative Value is an estimate, updated at
least every 15 seconds, of the value of a share of each series
during NASDAQ's Regular Market Session (as defined in Rule
4120(b)(4)(D)). See, e.g., NASDAQ Rules 5705(b)(3)(C) and
5705(b)(6)(A).
---------------------------------------------------------------------------
Such other event shall occur or condition exists which in
the opinion of NASDAQ makes further dealings on NASDAQ inadvisable.
Other Provisions
Upon termination of a Trust, NASDAQ requires that Commodity-Based
Trust Shares issued in connection with such entity Trust be removed
from NASDAQ listing. A Trust may terminate in accordance with the
provisions of the Trust prospectus, which may provide for termination
if the value of the Trust falls below a specified amount.
Proposed Rule 5711(d)(v)(C) provides that the stated term of the
Trust shall be as stated in the Trust prospectus. However, a Trust may
be terminated under such earlier circumstances as may be specified in
the Trust prospectus.
Proposed Rule 5711(d)(v)(D) would apply the following requirements
to the trustee of a Trust:
The trustee of a Trust must be a trust company or banking
institution having substantial capital and surplus and the experience
and facilities for handling corporate trust business. In cases where,
for any reason, an individual has been appointed as trustee, a
qualified trust company or banking institution must be appointed co-
trustee.
No change is to be made in the trustee of a listed issue
without prior notice to and approval of NASDAQ.
Proposed Rule 5711(d)(v)(E) states that voting rights shall be as
set forth in the applicable Trust prospectus.
Proposed Rules 5711(d)(vi) and (vii) describe the limitation of
NASDAQ liability and requirements for Market Makers in Commodity-Based
Trust Shares (see below for a general discussion of these
requirements).
Commentary .01 to proposed NASDAQ Rule 5711(d) provides that a
Commodity-Based Trust Share is a Trust Issued Receipt that holds a
specified commodity deposited with the Trust.
Commentary .02 to proposed NASDAQ Rule 5711(d) provides that NASDAQ
requires that Members provide all purchasers of newly issued Commodity-
Based Trust Shares a prospectus for the series of Commodity-Based Trust
Shares.
Commentary .03 to proposed NASDAQ Rule 5711(d) provides that
transactions in Commodity-Based Trust Shares will occur during the
trading hours specified in Rule 4120.
Commentary .04 to proposed NASDAQ Rule 5711(d) provides that NASDAQ
will file separate proposals under Section 19(b) of the Exchange Act
before the listing and/or trading of Commodity-Based Trust Shares.
The proposed rule change relating to Commodity-Based Trust Shares
is based on NYSEArca Equities Rule 8.201.
Currency Trust Shares
NASDAQ proposes to adopt new NASDAQ Rule 5711(e) for the purpose of
permitting the listing and trading, or trading pursuant to unlisted
trading privileges, of Currency Trust Shares. Proposed Rule 5711(e)
would be applicable only to Currency Trust Shares. Except to the extent
inconsistent with the proposed Rule, or unless the context otherwise
requires, the provisions of the trust issued receipts rules, Bylaws,
and all other rules and procedures of the Board of Directors shall be
applicable to the trading on NASDAQ of such securities. Currency Trust
Shares are included within the definition of ``security'' or
``securities'' as such terms are used in the Bylaws and Rules of
NASDAQ.
Description
Proposed Rule 5711(e)(iii) provides that the term ``Currency Trust
Shares'' as used in these proposed rules means, unless the context
otherwise requires, a security that:
Is issued by a Trust that holds a specified non-U.S.
currency or currencies deposited with the Trust;
When aggregated in some specified minimum number may be
surrendered to the Trust by an Authorized Participant (as defined in
the Trust's prospectus) to receive the specified non-U.S. currency or
currencies; and
Pays beneficial owners interest and other distributions on
the deposited non-U.S. currency or currencies, if any, declared and
paid by the Trust.
Proposed Rule 5711(e)(iv) states that NASDAQ may trade, either by
listing or pursuant to unlisted trading privileges, Currency Trust
Shares that hold a specified non-U.S. currency or currencies. Each
issue of Currency Trust Shares would be designated as a separate series
and shall be identified by a unique symbol.
Initial Listing Standards
NASDAQ will establish a minimum number of Currency Trust Shares
required to be outstanding at the time of commencement of trading on
NASDAQ.
Continued Listing Standards
Proposed Rule 5711(e)(v)(B) provides that, following the initial 12
month period following commencement of trading on NASDAQ of Currency
Trust Shares, NASDAQ will consider the suspension of trading in or
removal from listing of such series under any of the following
circumstances:
If the Trust has more than 60 days remaining until
termination and there are fewer than 50 record and/or beneficial
holders of Currency Trust Shares for 30 or more consecutive trading
days;
If the Trust has fewer than 50,000 Currency Trust Shares
issued and outstanding;
If the market value of all Currency Trust Shares issued
and outstanding is less than $1,000,000;
If the value of the applicable non-U.S. currency is no
longer calculated or available on at least a 15-second delayed basis
from a source unaffiliated with the sponsor, Trust, custodian or NASDAQ
or NASDAQ stops providing a hyperlink on its Web site to any such
unaffiliated applicable non-U.S. currency value;
If the Intraday Indicative Value is no longer made
available on at least a 15-second delayed basis; or
If such other event shall occur or condition exists which
in the opinion of NASDAQ makes further dealings on NASDAQ inadvisable.
Upon termination of a Trust, NASDAQ would require that Currency
[[Page 6841]]
Trust Shares issued in connection with such entity Trust be removed
from NASDAQ listing. A Trust may terminate in accordance with the
provisions of the Trust prospectus, which may provide for termination
if the value of the Trust falls below a specified amount.
Other
Proposed Rule 5711(e)(v)(C) states that the stated term of the
Trust shall be as stated in the Trust prospectus. However, a Trust may
be terminated under such earlier circumstances as may be specified in
the Trust prospectus.
Proposed Rule 5711(e)(v)(D) states that the following requirements
apply to the trustee of a Trust:
The trustee of a Trust must be a trust company or banking
institution having substantial capital and surplus and the experience
and facilities for handling corporate trust business. In cases where,
for any reason, an individual has been appointed as trustee, a
qualified trust company or banking institution must be appointed co-
trustee.
No change is to be made in the trustee of a listed issue
without prior notice to and approval of NASDAQ.
Proposed Rule 5711(e)(v)(E) states that voting rights shall be as
set forth in the applicable Trust prospectus.
Proposed Rules 5711(e)(vi) and (vii) set forth the requirements
respecting limitation of NASDAQ liability and Market Maker Accounts
(see below for a general discussion of these requirements).
Proposed Rule 5711(e)(viii) states that NASDAQ may submit a rule
filing pursuant to Section 19(b)(2) of the Act to permit the listing
and trading of Currency Trust Shares that do not otherwise meet the
standards set forth in Commentary .04 to proposed Rule 5711(e).
Commentary .01 to proposed Rule 5711(e) states that a Currency
Trust Share is a Trust Issued Receipt that holds a specified non-U.S.
currency or currencies deposited with the Trust.
Commentary .02 to proposed Rule 5711(e) states that NASDAQ requires
that Members provide all purchasers of newly issued Currency Trust
Shares a prospectus for the series of Currency Trust Shares.
Commentary .03 to proposed Rule 5711(e) provides that transactions
in Currency Trust Shares will occur during the trading hours specified
in NASDAQ Rule 4120.
Commentary .04 to proposed Rule 5711(e) provides that NASDAQ may
approve an issue of Currency Trust Shares for listing and/or trading
(including pursuant to unlisted trading privileges) pursuant to Rule
19b-4(e) under the Act. Such issue shall satisfy the criteria set forth
in the proposed rule, together with the following criteria:
A minimum of 100,000 shares of a series of Currency Trust
Shares is required to be outstanding at commencement of trading (this
would not apply to issues trading pursuant to unlisted trading
privileges);
The value of the applicable non-U.S. currency, currencies
or currency index must be disseminated by one or more major market data
vendors on at least a 15-second delayed basis;
The Intraday Indicative Value must be calculated and
widely disseminated by NASDAQ or one or more major market data vendors
on at least a 15-second basis during the Regular Market Session (as
defined in NASDAQ Rule 4120; and
NASDAQ will implement written surveillance procedures
applicable to Currency Trust Shares.
Commentary .05 to proposed Rule 5711(e) states that if the value of
a Currency Trust Share is based in whole or in part on an index that is
maintained by a broker-dealer, the broker-dealer would be required to
erect a ``firewall'' around the personnel responsible for the
maintenance of such index or who have access to information concerning
changes and adjustments to the index, and the index shall be calculated
by a third party who is not a broker-dealer. Additionally, any advisory
committee, supervisory board or similar entity that advises an index
licensor or administrator or that makes decisions regarding the index
or portfolio 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 applicable index or portfolio.
Commentary .06 to proposed Rule 5711(e) provides that Currency
Trust Shares will be subject to NASDAQ's equity trading rules.
Trading Halts
Proposed Commentary .07 to Rule 5711(e) states that if the Intraday
Indicative Value or the value of the non-U.S. currency or currencies or
the currency index applicable to a series of Currency Trust Shares is
not being disseminated as required, NASDAQ may halt trading during the
day on which such interruption first occurs. If such interruption
persists past the trading day in which it occurred, NASDAQ will halt
trading no later than the beginning of the trading day following the
interruption. If NASDAQ becomes aware that the net asset value
applicable to a series of Currency Trust Shares is not being
disseminated to all market participants at the same time, it will halt
trading in such series until such time as the net asset value is
available to all market participants.
The proposed rule change relating to Currency Trust Shares is based
on NYSEArca Equities Rule 8.202.
Commodity Index Trust Shares
NASDAQ will consider for trading, whether by listing or pursuant to
unlisted trading privileges, Commodity Index Trust Shares that meet the
criteria of proposed Rule 5711(f).
Proposed Rule 5711(f)(ii) states that proposed Rule 5711(f) would
be applicable only to Commodity Index Trust Shares. Except to the
extent inconsistent with the proposed Rule, or unless the context
otherwise requires, the provisions of the trust issued receipts rules,
Bylaws, and all other rules and procedures of the Board of Directors
shall be applicable to the trading on NASDAQ of such securities.
Commodity Index Trust Shares are included within the definition of
``security'' or ``securities'' as such terms are used in the Bylaws and
Rules of NASDAQ.
Description
Proposed Rule 5711(f)(iii) defines the term ``Commodity Index Trust
Shares'' to mean, as used in these proposed Rules (unless the context
otherwise requires), a security that (A) is issued by a Trust that (1)
is a commodity pool as defined in the Commodity Exchange Act and
regulations thereunder, and that is managed by a commodity pool
operator registered with the Commodity Futures Trading Commission; and
(2) that holds long positions in futures contracts on a specified
commodity index, or interests in a commodity pool which, in turn, holds
such long positions; and (B) when aggregated in some specified minimum
number may be surrendered to the Trust by the beneficial owner to
receive positions in futures contracts on a specified index and cash or
short term securities. The term ``futures contract'' is commonly known
as a ``contract of sale of a commodity for future delivery'' set forth
in Section 2(a) of the Commodity Exchange Act.
Proposed Rule 5711(f)(iv) states that NASDAQ may trade, either by
listing or pursuant to unlisted trading privileges, Commodity Index
Trust Shares based on one or more securities. The Commodity Index Trust
Shares based on particular securities would be designated as a
[[Page 6842]]
separate series and would be identified by a unique symbol.
Initial Listing Standards
Proposed Rule 5711(f)(v)(A) states that NASDAQ will establish a
minimum number of Commodity Index Trust Shares required to be
outstanding at the time of commencement of trading on NASDAQ.
Continued Listing Standards
Under proposed Rule 5711(f)(v)(B), NASDAQ will consider the
suspension of trading in or removal from listing of a series of
Commodity Index Trust Shares under any of the following circumstances:
Following the initial twelve-month period beginning upon
the commencement of trading of the Commodity Index Trust Shares, there
are fewer than 50 record and/or beneficial holders of Commodity Index
Trust Shares for 30 or more consecutive trading days;
If the value of the applicable underlying index is no
longer calculated or available on at least a 15-second delayed basis
from a source unaffiliated with the sponsor, the Trust or the trustee
of the Trust;
If the net asset value for the trust is no longer
disseminated to all market participants at the same time;
If the Intraday Indicative Value is no longer made
available on at least a 15-second delayed basis; or
If such other event shall occur or condition exists which
in the opinion of NASDAQ makes further dealings on NASDAQ inadvisable.
Upon termination of a Trust, NASDAQ would require that Commodity
Index Trust Shares issued in connection with such entity Trust be
removed from NASDAQ listing. A Trust may terminate in accordance with
the provisions of the Trust prospectus, which may provide for
termination if the value of the Trust falls below a specified amount.
Proposed Rule 5711(f)(v)(C) provides that the stated term of the
Trust shall be as stated in the Trust prospectus. However, a Trust may
be terminated under such earlier circumstances as may be specified in
the Trust prospectus.
Proposed Rule 5711(f)(v)(D) states that the following requirements
apply to the trustee of a Trust:
The trustee of a Trust must be a trust company or banking
institution having substantial capital and surplus and the experience
and facilities for handling corporate trust business. In cases where,
for any reason, an individual has been appointed as trustee, a
qualified trust company or banking institution must be appointed co-
trustee.
No change is to be made in the trustee of a listed issue
without prior notice to and approval of NASDAQ.
Proposed Rule 5711(f)(v)(E) provides that voting rights shall be as
set forth in the applicable Trust prospectus.
Proposed Rules 5711(f)(vi) and (vii) set forth the requirements
respecting limitation of NASDAQ liability and Market Maker Accounts
(see below for a general discussion of these requirements).
Commentary .01 to proposed Rule 5711(f) states that a Commodity
Index Trust Share is a Trust Issued Receipt that holds long positions
in futures contracts on a specified commodity index, or interests in a
commodity pool which, in turn, holds such long positions, deposited
with the Trust.
Commentary .02 to proposed Rule 5711(f) states that NASDAQ requires
that Members provide all purchasers of newly issued Commodity Index
Trust Shares a prospectus for the series of Commodity Index Trust
Shares.
Commentary .03 to proposed Rule 5711(f) states that transactions in
Commodity Index Trust Shares will occur during the trading hours
specified in Rule 4120.
Commentary .04 to proposed Rule 5711(f) states that NASDAQ will
file separate proposals under Section 19(b) of the Act before trading,
either by listing or pursuant to unlisted trading privileges, Commodity
Index Trust Shares.
The proposed rule change relating to Commodity Index Trust Shares
is based on NYSEArca Equities Rule 8.202.
Commodity Futures Trust Shares
Proposed Rule 5711(g) governs the listing of Commodity Futures
Trust Shares. NASDAQ will consider for trading, whether by listing or
pursuant to unlisted trading privileges, Commodity Futures Trust Shares
that meet the criteria of proposed Rule 5711(g).
Proposed Rule 5711(g)(ii) states that proposed Rule 5711(g) would
apply only to Commodity Futures Trust Shares. Except to the extent
inconsistent with the proposed Rule, or unless the context otherwise
requires, the provisions of the trust issued receipts rules, Bylaws,
and all other rules and procedures of the Board of Directors shall be
applicable to the trading on NASDAQ of such securities. Commodity
Futures Trust Shares are included within the definition of ``security''
or ``securities'' as such terms are used in the Bylaws and Rules of
NASDAQ.
Description
Proposed Rule 5711(g)(iii) states that the term ``Commodity Futures
Trust Shares'' as used in the proposed Rules means, unless the context
otherwise requires, a security that: (i) is issued by a Trust that is a
commodity pool as defined in the Commodity Exchange Act and regulations
thereunder, and that is managed by a commodity pool operator registered
with the Commodity Futures Trading Commission, and holds positions in
futures contracts that track the performance of a specified commodity,
or interests in a commodity pool which, in turn, holds such positions;
and (ii) is issued and redeemed daily in specified aggregate amounts at
net asset value. The term ``futures contract'' is a ``contract of sale
of a commodity for future delivery'' set forth in Section 2(a) of the
Commodity Exchange Act. The term ``commodity'' is defined in Section
1(a)(4) of the Commodity Exchange Act.
Designation of an Underlying Commodity Futures Contract
Proposed Rule 5711(g)(iv) states that NASDAQ may trade, either by
listing or pursuant to unlisted trading privileges, Commodity Futures
Trust Shares based on an underlying commodity futures contract. Each
issue of Commodity Futures Trust Shares shall be designated as a
separate series and shall be identified by a unique symbol.
Initial Listing Standards
Proposed Rule 5711(g)(v)(A) states that NASDAQ will establish a
minimum number of Commodity Futures Trust Shares required to be
outstanding at the time of commencement of trading on NASDAQ.
Continued Listing Standards
Proposed Rule 5711(g)(v)(B) states that NASDAQ will consider the
suspension of trading in or removal from listing of a series of
Commodity Futures Trust Shares under any of the following
circumstances:
If, following the initial twelve-month period beginning
upon the commencement of trading of the Commodity Futures Trust Shares:
(1) the Trust has fewer than 50,000 Commodity Futures Trust Shares
issued and outstanding; or (2) the market value of all Commodity
Futures Trust Shares issued and outstanding is less than $1,000,000; or
(3) there are fewer than 50 record and/or beneficial holders of
Commodity Futures Trust Shares for 30 consecutive trading days;
If the value of the underlying futures contracts is no
longer calculated or available on at least a 15-second
[[Page 6843]]
delayed basis during NASDAQ's Regular Market Session (as defined in
NASDAQ Rule 4120) from a source unaffiliated with the sponsor, the
Trust or the trustee of the Trust;
If the net asset value for the Trust is no longer
disseminated to all market participants at the same time;
If the Intraday Indicative Value is no longer disseminated
on at least a 15-second delayed basis during NASDAQ's Regular Market
Session (as defined in NASDAQ Rule 4120); or
If such other event shall occur or condition exists which
in the opinion of NASDAQ makes further dealings on NASDAQ inadvisable.
Upon termination of a Trust, NASDAQ requires that Commodity Futures
Trust Shares issued in connection with such trust be removed from
NASDAQ listing. A Trust will terminate in accordance with the
provisions of the Trust prospectus.
Proposed Rule 5711(g)(v)(C) states that the stated term of the
Trust shall be as stated in the prospectus. However, a Trust may be
terminated under such earlier circumstances as may be specified in the
Trust prospectus.
Proposed Rule 5711(g)(v)(D) states that the following requirements
apply to the trustee of a Trust:
The trustee of a Trust must be a trust company or banking
institution having substantial capital and surplus and the experience
and facilities for handling corporate trust business. In cases where,
for any reason, an individual has been appointed as trustee, a
qualified trust company or banking institution must be appointed co-
trustee.
No change is to be made in the trustee of a listed issue
without prior notice to and approval of NASDAQ.
Proposed Rule 5711(g)(v)(E) states that voting rights shall be as
set forth in the applicable Trust prospectus.
Proposed Rules 5711(g)(vi) and (vii) describe the requirements for
Market Makers and the limitation of NASDAQ liability in Commodity
Futures Trust Shares (see below for a general discussion of these
requirements).
Proposed Rule 5711(g)(viii) states that NASDAQ will file separate
proposals under Section 19(b) of the Act before listing and trading
separate and distinct Commodity Futures Trust Shares designated on
different underlying futures contracts.
Commentary .01 to proposed Rule 5711(g) would require Members
trading in Commodity Futures Trust Shares to provide all purchasers of
newly issued Commodity Futures Trust Shares a prospectus for the series
of Commodity Futures Trust Shares.
Commentary .02 to proposed Rule 5711(g) states that transactions in
Commodity Futures Trust Shares will occur during the trading hours
specified in Rule 4120.
Commentary .03 to proposed Rule 5711(g) states that if the Intraday
Indicative Value or the value of the underlying futures contract 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 value of the underlying futures contract
occurs. If the interruption to the dissemination of the Intraday
Indicative Value or the value of the underlying futures contract
persists past the trading day in which it occurred, NASDAQ will halt
trading no later than the beginning of the trading day following the
interruption.
In addition, if NASDAQ becomes aware that the net asset value with
respect to a series of Commodity Futures Trust Shares is not
disseminated to all market participants at the same time, it will halt
trading in such series until such time as the net asset value is
available to all market participants.
Commentary .04 to proposed Rule 5711(g) states that NASDAQ's rules
governing the trading of equity securities apply.
Commentary .05 to proposed Rule 5711(g) states that NASDAQ will
implement written surveillance procedures for Commodity Futures Trust
Shares.
The proposed rule change relating to Commodity Futures Trust Shares
is based on NYSEArca Equities Rule 8.204.
Partnership Units
Proposed Rule 5711(h) would govern the listing of Partnership
Units. Under proposed Rule 5711(h)(i), NASDAQ will consider for
trading, whether by listing or pursuant to unlisted trading privileges,
Partnership Units that meet the criteria of proposed Rule 5711(h).
Description
Under proposed Rule 5711(h)(ii), the following terms as used in the
proposed Rule would, unless the context otherwise requires, have the
meanings herein specified.
Proposed Rule 5711(h)(ii)(A) states that the term ``commodity'' is
defined in Section 1(a)(4) of the Commodity Exchange Act.
Proposed Rule 5711(h)(ii)(B) defines a Partnership Unit for
purposes of the proposed Rule as a security (a) that is issued by a
partnership that invests in any combination of futures contracts,
options on futures contracts, forward contracts, commodities and/or
securities; and (b) that is issued and redeemed daily in specified
aggregate amounts at net asset value.
Proposed Rule 5711(h)(iii) states that NASDAQ may list and trade
Partnership Units based on an underlying asset, commodity or security.
Each issue of a Partnership Unit would be designated as a separate
series and would be identified by a unique symbol.
Initial Listing Standards
Proposed Rule 5711(h)(iv)(A) states that NASDAQ will establish a
minimum number of Partnership Units required to be outstanding at the
time of commencement of trading on NASDAQ.
Continued Listing Standards
Proposed Rule 5711(h)(iv)(B) provides that NASDAQ will consider
removal of Partnership Units from listing under any of the following
circumstances:
If, following the initial twelve month period from the
date of commencement of trading of the Partnership Units, (a) the
partnership has more than 60 days remaining until termination and there
are fewer than 50 record and/or beneficial holders of the Partnership
Units for 30 or more consecutive trading days; (b) the partnership has
fewer than 50,000 Partnership Units issued and outstanding; or (c) the
market value of all Partnership Units issued and outstanding is less
than $1,000,000;
If the value of the underlying benchmark investment,
commodity or asset is no longer calculated or available on at least a
15-second delayed basis or NASDAQ stops providing a hyperlink on its
Web site to any such investment, commodity or asset value;
If the Intraday Indicative Value is no longer made
available on at least a 15- second delayed basis; or
If such other event shall occur or condition exists which
in the opinion of NASDAQ makes further dealings on NASDAQ inadvisable.
Upon termination of a partnership, NASDAQ requires that Partnership
Units issued in connection with such partnership be removed from NASDAQ
listing. A partnership will terminate in accordance with the provisions
of the partnership prospectus.
Proposed Rule 5711(h)(iv)(C) provides that the stated term of the
partnership shall be as stated in the prospectus. However, such entity
may be terminated under such earlier circumstances as may be specified
in the Partnership prospectus.
Proposed Rule 5711(h)(iv)(D) would adopt the following requirements
that
[[Page 6844]]
apply to the general partner of a partnership:
The general partner of a partnership must be an entity
having substantial capital and surplus and the experience and
facilities for handling partnership business. In cases where, for any
reason, an individual has been appointed as general partner, a
qualified entity must also be appointed as general partner.
No change is to be made in the general partner of a listed
issue without prior notice to and approval of NASDAQ.
Proposed Rule 5711(h)(iv)(E) states that voting rights shall be as
set forth in the applicable partnership prospectus.
Proposed Rule 5711(h)(v) and (vi) describe the limitation of NASDAQ
liability and requirements for Market Makers in Partnership Units (see
below for a general discussion of these requirements).
Proposed Rule 5711(h)(vii) states that NASDAQ will file separate
proposals under Section 19(b) of the Act before listing and trading
separate and distinct Partnership Units designated on different
underlying investments, commodities and/or assets.
Commentary .01 to proposed Rule 5711(h) states that NASDAQ requires
that Members provide to all purchasers of newly issued Partnership
Units a prospectus for the series of Partnership Units.
The proposed rule change relating to Partnership Units is based on
NYSEArca Equities Rule 8.300.
Trust Units
NASDAQ proposes to add new Rule 5711(i) in order to permit trading,
either by listing or pursuant to unlisted trading privileges, of Trust
Units.
Proposed Rule 5711(i)(i) states that the provisions in proposed
Rule 5711(i) are applicable only to Trust Units. In addition, except to
the extent inconsistent with this Rule, or unless the context otherwise
requires, the rules and procedures of the Board of Directors shall be
applicable to the trading on NASDAQ of such securities. Trust Units are
included within the definition of ``security,'' ``securities'' and
``derivative securities products'' as such terms are used in the Rules
of NASDAQ.
Description
Proposed Rule 5711(i)(ii) states that the following terms as used
in the proposed Rule shall, unless the context otherwise requires, have
the meanings herein specified:
The term ``commodity'' is defined in Section 1(a)(4) of
the Commodity Exchange Act.
A Trust Unit is a security that is issued by a trust or
other similar entity that is constituted as a commodity pool that holds
investments comprising or otherwise based on any combination of futures
contracts, options on futures contracts, forward contracts, swap
contracts, commodities and/or securities.
Proposed Rule 5711(i)(iii) states that NASDAQ may list and trade
Trust Units based on an underlying asset, commodity, security or
portfolio. Each issue of a Trust Unit shall be designated as a separate
series and shall be identified by a unique symbol.
Initial Listing Standards
Proposed Rule 5711(i)(iv)(A) states that NASDAQ will establish a
minimum number of Trust Units required to be outstanding at the time of
commencement of trading on NASDAQ. NASDAQ will obtain a representation
from the issuer of each series of Trust Units that the net asset value
per share for the series will be calculated daily and will be made
available to all market participants at the same time.
Continued Listing Standards
Proposed Rule 5711(i)(iv)(B)(1) states that NASDAQ will remove
Trust Units from listing under any of the following circumstances:
If following the initial twelve month period following the
commencement of trading of Trust Units, (i) the trust has more than 60
days remaining until termination and there are fewer than 50 record
and/or beneficial holders of Trust Units for 30 or more consecutive
trading days; (ii) the trust has fewer than 50,000 Trust Units issued
and outstanding; or (iii) the market value of all Trust Units issued
and outstanding is less than $1,000,000; or
If such other event shall occur or condition exists which
in the opinion of the NASDAQ makes further dealings on NASDAQ
inadvisable.
Trading Halts
Proposed Rule 5711(i)(iv)(B)(2) states that NASDAQ will halt
trading in a series of Trust Units if the circuit breaker parameters in
Rule 4120(a)(11) have been reached. In exercising its discretion to
halt or suspend trading in a series of Trust Units, NASDAQ may consider
any relevant factors. In particular, if the portfolio and net asset
value per share are not being disseminated as required, NASDAQ may halt
trading during the day in which the interruption to the dissemination
of the portfolio holdings or net asset value per share occurs. If the
interruption to the dissemination of the portfolio holdings or net
asset value per share persists past the trading day in which it
occurred, NASDAQ will halt trading no later than the beginning of the
trading day following the interruption.
Upon termination of a trust, NASDAQ would require that Trust Units
issued in connection with such trust be removed from NASDAQ listing. A
trust will terminate in accordance with the provisions of the
prospectus.
Proposed Rule 5711(i)(iv)(C) provides that the stated term of the
trust shall be as stated in the prospectus. However, such entity may be
terminated under such earlier circumstances as may be specified in the
prospectus.
Proposed Rule 5711(i)(iv)(D) would adopt the following requirements
applicable to the trustee of a Trust:
The trustee of a trust must be a trust company or banking
institution having substantial capital and surplus and the experience
and facilities for handling corporate trust business. In cases where,
for any reason, an individual has been appointed as trustee, a
qualified trust company or banking institution must be appointed co-
trustee.
No change is to be made in the trustee of a listed issue
without prior notice to and approval of NASDAQ.
Proposed Rule 5711(i)(iv)(E) states that voting rights shall be as
set forth in the prospectus.
Proposed Rules 5711(i)(v) and (vi) describe the requirements for
Market Makers and the limitation of NASDAQ liability respecting Trust
Units (see below for a general discussion of these requirements).
Commentary .01 to proposed Rule 5711(i) states that NASDAQ requires
that Members provide to all purchasers of newly issued Trust Units a
prospectus for the series of Trust Units.
Commentary .02 to proposed Rule 5711(i) states that transactions in
Trust Units will occur during the trading hours specified in NASDAQ
Rule 4120.
Commentary .03 to proposed Rule 5711(i) states that NASDAQ will
file separate proposals under Section 19(b) of the Act before listing
and trading separate and distinct Trust Units designated on different
underlying investments, commodities, assets and/or portfolios.
The proposed rule change relating to Trust Units is based on
NYSEArca Equities Rule 8.500.
Managed Trust Securities
Proposed Rule 5711(j) would adopt listing standards for Managed
Trust Securities. Under proposed Rule 5711(j)(i), NASDAQ will consider
for
[[Page 6845]]
trading, whether by listing or pursuant to unlisted trading privileges,
Managed Trust Securities that meet the criteria of the proposed Rule.
Proposed Rule 5711(j)(ii) states that the proposed Rule would apply
only to Managed Trust Securities. Managed Trust Securities are included
within the definition of ``security'' or ``securities'' as such terms
are used in the Bylaws and Rules of NASDAQ.
Description
Proposed Rule 5711(j)(iii)(A) defines the term ``Managed Trust
Securities'' to mean, unless the context otherwise requires, a security
that is registered under the Securities Act of 1933, as amended, and
which (1) is issued by a Trust that is a commodity pool as defined in
the Commodity Exchange Act and regulations thereunder, and that is
managed by a commodity pool operator registered with the Commodity
Futures Trading Commission, and which holds long and/or short positions
in exchange-traded futures contracts and/or certain currency forward
contracts selected by the Trust's advisor consistent with the Trust's
investment objectives, which will only include, exchange-traded futures
contracts involving commodities, currencies, stock indices, fixed
income indices, interest rates and sovereign, private and mortgage or
asset backed debt instruments, and/or forward contracts on specified
currencies, each as disclosed in the Trust's prospectus as such may be
amended from time to time; and (2) is issued and redeemed continuously
in specified aggregate amounts at the next applicable net asset value.
Proposed Rule 5711(j)(iii) also includes the following definitions
concerning Managed Trust Securities:
Disclosed Portfolio. Under proposed Rule 5711(j)(iii)(B),
the term ``Disclosed Portfolio'' means the identities and quantities of
the securities and other assets held by the Trust that will form the
basis for the Trust's calculation of net asset value at the end of the
business day.
Intraday Indicative Value. Under proposed Rule
5711(j)(iii)(C), the term ``Intraday Indicative Value'' is the
estimated indicative value of a Managed Trust Security based on current
information regarding the value of the securities and other assets in
the Disclosed Portfolio.
Reporting Authority. Under proposed Rule 5711(j)(iii)(D),
the term ``Reporting Authority'' in respect of a particular series of
Managed Trust Securities means NASDAQ, an institution, or a reporting
or information service designated by NASDAQ or by the Trust or the
exchange that lists a particular series of Managed Trust Securities (if
NASDAQ is trading such series pursuant to unlisted trading privileges)
as the official source for calculating and reporting information
relating to such series, including, but not limited to, the Intraday
Indicative Value; the Disclosed Portfolio; the amount of any cash
distribution to holders of Managed Trust Securities, net asset value,
or other information relating to the issuance, redemption or trading of
Managed Trust Securities. A series of Managed Trust Securities may have
more than one Reporting Authority, each having different functions.
Proposed Rule 5711(j)(iv) states that NASDAQ may trade, either by
listing or pursuant to unlisted trading privileges, Managed Trust
Securities based on the underlying portfolio of exchange-traded futures
and/or certain currency forward contracts described in the related
prospectus. Each issue of Managed Trust Securities shall be designated
as a separate trust or series and shall be identified by a unique
symbol.
Initial Listing Standards
Under proposed Rule 5711(j)(v)(A), Managed Trust Securities will be
listed and traded on NASDAQ subject to application of the following
initial listing criteria:
NASDAQ will establish a minimum number of Managed Trust
Securities required to be outstanding at the time of commencement of
trading on NASDAQ.
NASDAQ will obtain a representation from the issuer of
each series of Managed Trust Securities that the net asset value per
share for the series will be calculated daily and that the net asset
value and the Disclosed Portfolio will be made available to all market
participants at the same time.
Continued Listing Standards
Under proposed Rule 5711(j)(v)(B), each series of Managed Trust
Securities will be listed and traded on NASDAQ subject to application
of the following continued listing criteria:
The Intraday Indicative Value for Managed Trust Securities
will be widely disseminated by one or more major market data vendors at
least every 15 seconds during the time when the Managed Trust
Securities trade on NASDAQ.
The Disclosed Portfolio will be disseminated at least once
daily and will be made available to all market participants at the same
time.
The Reporting Authority that provides the Disclosed
Portfolio must implement and maintain, or be subject to, procedures
designed to prevent the use and dissemination of material non-public
information regarding the actual components of the portfolio.
Under proposed Rule 5711(j)(v)(B)(3), NASDAQ will consider the
suspension of trading in or removal from listing of a series of Managed
Trust Securities under any of the following circumstances:
If, following the initial twelve-month period beginning
upon the commencement of trading of the Managed Trust Securities: (A)
The Trust has fewer than 50,000 Managed Trust Securities issued and
outstanding; (B) the market value of all Managed Trust Securities
issued and outstanding is less than $1,000,000; or (C) there are fewer
than 50 record and/or beneficial holders of Managed Trust Securities
for 30 consecutive trading days;
If the Intraday Indicative Value for the Trust is no
longer calculated or available or the Disclosed Portfolio is not made
available to all market participants at the same time;
If the Trust issuing the Managed Trust Securities has
failed to file any filings required by the Securities and Exchange
Commission or if NASDAQ is aware that the Trust is not in compliance
with the conditions of any exemptive order or no-action relief granted
by the Securities and Exchange Commission to the Trust with respect to
the series of Managed Trust Securities; or
If such other event shall occur or condition exists which
in the opinion of NASDAQ makes further dealings on NASDAQ inadvisable.
Trading Halts
Proposed Rule 5711(j)(v)(B)(4) states that, if the Intraday
Indicative Value of a series of Managed Trust Securities 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 occurs. If the interruption to the dissemination of the Intraday
Indicative Value persists past the trading day in which it occurred,
NASDAQ will halt trading no later than the beginning of the trading day
following the interruption. If a series of Managed Trust Securities is
trading on NASDAQ pursuant to unlisted trading privileges, NASDAQ will
halt trading in that series as specified in Rule 4120(a) or (b) as
applicable. In addition, if NASDAQ becomes aware that the net asset
value or the Disclosed Portfolio with respect to a series of Managed
Trust Securities is not disseminated to all market participants at the
same time, it will halt trading in such series until such time as the
net asset value or the Disclosed
[[Page 6846]]
Portfolio is available to all market participants.
Proposed Rule 5711(j)(v)(B)(5) states that upon termination of a
Trust, NASDAQ requires that Managed Trust Securities issued in
connection with such Trust be removed from NASDAQ listing. A Trust will
terminate in accordance with the provisions of the Trust prospectus.
Proposed Rule 5711(j)(v)(C) states that the term of the Trust shall
be as stated in the prospectus. However, a Trust may be terminated
under such earlier circumstances as may be specified in the Trust
prospectus.
Proposed Rule 5711(j)(v)(D) would state that the following
requirements apply to the trustee of a Trust:
The trustee of a Trust must be a trust company or banking
institution having substantial capital and surplus and the experience
and facilities for handling corporate trust business. In cases where,
for any reason, an individual has been appointed as trustee, a
qualified trust company or banking institution must be appointed co-
trustee.
No change is to be made in the trustee of a listed issue
without prior notice to and approval of NASDAQ.
Proposed Rule 5711(j)(v)(E) states that voting rights shall be as
set forth in the applicable Trust prospectus.
Proposed Rules 5711(j)(vi) and (vii) describe the regulatory
requirements for registered Market Makers in Managed Trust Securities,
and the limitation of NASDAQ liability respecting Managed Trust
Securities (see below for a general discussion of these requirements).
Proposed Rule 5711(j)(viii) states that NASDAQ will file separate
proposals under Section 19(b) of the Act before listing and trading
separate and distinct Managed Trust Securities.
In addition to the above, the Commentary to proposed Rule 5711(j)
includes the following provisions:
Commentary .01 to proposed Rule 5711(j) states that NASDAQ requires
that Members provide all purchasers of newly issued Managed Trust
Securities a prospectus for the series of Managed Trust Securities.
Commentary .02 to proposed Rule 5711(j) states that transactions in
Managed Trust Securities will occur during the trading hours specified
in Rule 4120.
Commentary .03 to proposed Rule 5711(j) states that NASDAQ's rules
governing the trading of equity securities apply.
Commentary .04 to proposed Rule 5711(j) states that NASDAQ will
implement written surveillance procedures for Managed Trust Securities.
Commentary .05 to proposed Rule 5711(j) states that if the Trust's
advisor is affiliated with a broker-dealer, the broker-dealer shall
erect a ``fire wall'' around the personnel who have access to
information concerning changes and adjustments to the Disclosed
Portfolio. Personnel who make decisions on the Trust's portfolio
composition must be subject to procedures designed to prevent the use
and dissemination of material nonpublic information regarding the
applicable Trust portfolio.
The proposed rule change relating to Managed Trust Securities is
based on NYSEArca Equities Rule 8.700.
Currency Warrants
Proposed Rule 5711(k) would govern the listing of Currency
Warrants. Under proposed Rule 5711(k)(i), the listing of Currency
Warrant issues is considered on a case-by-case basis. Currency Warrant
issues will be evaluated for listing against the following criteria:
Initial Listing Standards
Proposed Rule 5711(k)(i)(A) requires the warrant issuer to have a
minimum tangible net worth in excess of $250,000,000 and otherwise to
exceed substantially the earnings requirements set forth in Rule
5405(b).\13\ In the alternative, the warrant issuer will be expected to
have a minimum tangible net worth of $150,000,000 and otherwise to
exceed substantially the earnings requirements set forth in Rule
5405(b), and not to have issued warrants where the original issue price
of all the issuer's currency warrant offerings (combined with currency
warrant offerings of the issuer's affiliates) listed on a national
securities exchange or traded through the facilities of NASDAQ exceeds
25% of the warrant issuer's net worth.
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\13\ Rule 5405(b) sets forth initial listing standards for
primary equity securities.
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Proposed Rule 5711(k)(i)(B) states that the term must be one to
five years from date of issuance.
Proposed Rule 5711(k)(i)(C) requires that there must be a minimum
public distribution of 1,000,000 warrants together with a minimum of
400 public holders, and an aggregate market value of $4,000,000. In the
alternative, there must be a minimum public distribution of 2,000,000
warrants together with a minimum number of public warrant holders
determined on a case by case basis, an aggregate market value of
$12,000,000 and an initial warrant price of $6.
Under proposed Rule 5711(k)(i)(D), the warrants will be cash
settled in U.S. dollars.
Under proposed Rule 5711(k)(i)(E), all currency warrants must
include in their terms provisions specifying the time by which all
exercise notices must be submitted, and that all unexercised warrants
that are in the money will be automatically exercised on their
expiration date or on or promptly following the date on which such
warrants are delisted by NASDAQ (if such warrant issue has not been
listed on another organized securities market in the United States).
Under proposed Rule 5711(k)(ii), NASDAQ will file separate
proposals under Section 19(b) of the Act before listing and trading
separate and distinct Currency Warrants.
Regulatory Matters
Proposed Rule 5711(k)(iii) describes regulatory matters applicable
to Currency Warrants. Specifically:
No Member shall accept an order from a customer to
purchase or sell a Currency Warrant unless the customer's account has
been approved for options trading pursuant to NOM Rules Chapter XI,
Section 7.
Suitability. The provisions of NOM Rules Chapter XI,
Section 9 shall apply to recommendations in Currency Warrants and the
term ``option'' as used therein shall be deemed for purposes of this
Rule to include such warrants.
Discretionary Accounts. Any account in which a Member
exercises discretion to trade in Currency Warrants shall be subject to
the provisions of NOM Rules, Chapter XI, Section 10 with respect to
such trading. For purposes of this Rule, the terms ``option'' and
``options contract'' as used in Chapter XI, Section 10 shall be deemed
to include Currency Warrants.
Supervision of Accounts. NOM Rules, Chapter XI, Section 8
shall apply to all customer accounts of a Member in which transactions
in Currency Warrants are effected. The term ``option'' as used in
Chapter XI, Section 8 shall be deemed to include Currency Warrants.
Public Customer Complaints. NOM Rules, Chapter XI, Section
24 shall apply to all public customer complaints received by a Member
regarding Currency Warrants. The term ``option'' as used in Chapter XI,
Section 24 shall be deemed to include such warrants.
Communications with Public Customers. Members
participating in Currency Warrants shall be bound to comply with the
Communications and Disclosures rule of FINRA, as
[[Page 6847]]
applicable, as though such rule were part of these Rules.
Trading Halts or Suspensions
Under proposed Rule 5711(k)(iv), trading on NASDAQ in any Currency
Warrant will be halted whenever NASDAQ deems such action appropriate in
the interests of a fair and orderly market or to protect investors.
Trading in Currency Warrants that have been the subject of a halt or
suspension by NASDAQ may resume if NASDAQ determines that the
conditions which led to the halt or suspension are no longer present,
or that the interests of a fair and orderly market are best served by a
resumption of trading.
Reporting of Warrant Positions
Proposed Rule 5711(k)(v) would govern reporting of warrant
positions. Proposed Rule 5711(k)(v)(A) would require each Member to
file with NASDAQ a report with respect to each account in which the
Member has an interest, each account of a partner, officer, director,
or employee of such Member, and each customer account that has
established an aggregate position (whether long or short) of 100,000
warrants covering the same underlying currency, combining for purposes
of the proposed Rule: (1) Long positions in put warrants and short
positions in call warrants, and (2) short positions in put warrants
with long positions in call warrants. The report shall be in such form
as may be prescribed by NASDAQ and shall be filed no later than the
close of business on the next day following the day on which the
transaction or transactions requiring the filing of such report
occurred.
Proposed Rule 5711(k)(v)(B) states that whenever a report shall be
required to be filed with respect to an account pursuant to the
proposed Rule, the Member filing the same must file with NASDAQ such
additional periodic reports with respect to such account as NASDAQ may
from time to time require.
Proposed Rule 5711(k)(v)(C) states that all reports required by the
proposed Rule shall be filed with NASDAQ in such manner and form as
prescribed by NASDAQ.
The proposed rule change relating to Currency Warrants is based on
NYSEArca Equities Rules 8.3, 8.4, 8.5, 8.6, 8.7, 8.8, 8.9, 8.12, and
8.13.
General Provisions
To the extent not specifically addressed in the respective proposed
rules, the following general provisions apply to all of the proposed
rules and subject securities affected by the proposed rules
(``securities''):
Information Circular
Prior to the commencement of trading, NASDAQ will inform its
Members in an Information Circular of the special characteristics and
risks associated with trading the securities. Specifically, the
Information Circular will discuss the following: (1) The procedures for
purchases and redemptions of the securities (and/or that the securities
are not individually redeemable); (2) NASDAQ Rule 2310, which imposes
suitability obligations on NASDAQ Members with respect to recommending
transactions in the securities 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 securities prior to or concurrently with the confirmation
of a transaction; and (5) trading information.
In addition, the Information Circular will advise Members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the securities. Members purchasing securities 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 the
securities are subject to various fees and expenses described in the
registration statement. If applicable, the Information Circular will
also reference that the CFTC has regulatory jurisdiction over the
trading of futures contracts.
The Information Circular will also disclose the trading hours of
the securities and, if applicable, the Net Asset Value (``NAV'')
calculation time for the securities. The Information Circular will
disclose that information about the securities and the corresponding
indexes, if applicable, will be publicly available on the Web site for
the securities. The Information Circular will also reference, if
applicable, the fact that there is no regulated source of last sale
information regarding physical commodities, and that the Commission has
no jurisdiction over the trading of physical commodities or futures
contracts on which the value of the securities may be based.
The Information Circular will also reference the risks involved in
trading the securities during the Opening Process and the Post-Market
Session when an updated Intraday Indicative Value will not be
calculated or publicly disseminated and, if applicable, the risks
involved in trading the securities during the Regular Market Session
when the Intraday Indicative Value may be static or based in part on
the fluctuation of currency exchange rates when the underlying markets
have closed prior to the close of NASDAQ's Regular Market Session.
Limitation of NASDAQ Liability
Neither NASDAQ, any agent of NASDAQ, nor the Reporting Authority
(if applicable), shall have any liability for damages, claims, losses
or expenses caused by any errors, omissions, or delays in calculating
or disseminating any applicable underlying index or asset value; the
current value of the applicable positions or interests required to be
deposited to a Trust, if applicable, in connection with issuance of the
securities; net asset value; or any other information relating to the
purchase, redemption, or trading of the securities, resulting from any
negligent act or omission by NASDAQ, any agent of NASDAQ, or the
Reporting Authority (if applicable), or any act, condition or cause
beyond the reasonable control of NASDAQ, any agent of NASDAQ, or the
Reporting Authority (if applicable), including, but not limited to, an
act of God; fire; flood; extraordinary weather conditions; war;
insurrection; riot; strike; accident; action of government;
communications or power failure; equipment or software malfunction; or
any error, omission or delay in the reports of transactions in the
applicable positions or interests.
Market Maker Accounts
A registered Market Maker in the securities described below must
file with NASDAQ, in a manner prescribed by NASDAQ, and keep current a
list identifying all accounts for trading in:
In the case of Commodity-Based Trust Shares, the
applicable underlying commodity, related commodity futures or options
on commodity futures, or any other related commodity derivatives, which
the registered Market Maker may have or over which it may exercise
investment discretion (``Underlying Commodities'');
In the case of Currency Trust Shares, the applicable
underlying non-U.S. currency, options, futures or options on futures on
such currency, or any other derivatives based on such currency, which
the registered Market Maker may have or over which it may exercise
investment discretion (``Underlying Currencies'');
[[Page 6848]]
In the case of Commodity Index Trust Shares, the
applicable physical commodities included in, or options, futures or
options on futures on, an index underlying an issue of Commodity Index
Trust Shares or any other derivatives based on such index or based on
any commodity included in such index, which the registered Market Maker
may have or over which it may exercise investment discretion
(``Underlying Commodity Index Assets'');
In the case of Commodity Futures Trust Shares, the
applicable underlying commodity, related futures or options on futures,
or any other related derivatives, which the registered Market Maker may
have or over which it may exercise investment discretion (``Underlying
Commodity Futures'');
In the case of Partnership Units, the applicable
underlying asset or commodity, related futures or options on futures,
or any other related derivatives, which the registered Market Maker may
have or over which it may exercise investment discretion (``Underlying
Partnership Unit Assets'');
In the case of Trust Units, the applicable underlying
commodity, related commodity futures or options on commodity futures,
or any other related commodity derivatives, which the registered Market
Maker may have or over which it may exercise investment discretion
(``Underlying Trust Unit Assets''); and
In the case of Managed Trust Securities, the underlying
commodity or applicable currency, related futures or options on
futures, or any other related derivatives, which a registered Market
Maker may have or over which it may exercise investment discretion
(``Underlying Managed Trust Assets'').
No registered Market Maker in the above mentioned securities shall
trade in the respective Underlying Commodities, Underlying Currencies,
Underlying Commodity Index Assets, Underlying Commodity Futures,
Underlying Partnership Unit Assets, Underlying Trust Unit Assets, and/
or the Underlying Managed Trust Assets (collectively, ``Underlying
Assets'') in an account in which a market maker, directly or
indirectly, controls trading activities, or has a direct interest in
the profits or losses thereof, which has not been reported to NASDAQ.
In addition to the existing obligations under NASDAQ rules
regarding the production of books and records (see, e.g., Rule 4625), a
registered Market Maker in the above mentioned securities is required
to make available to NASDAQ such books, records or other information
pertaining to transactions by such entity or registered or non-
registered employee affiliated with such entity for its or their own
accounts for trading the applicable Underlying Assets as may be
requested by NASDAQ.
Trading Rules
NASDAQ deems the securities to be equity securities, thus rendering
trading in the securities subject to NASDAQ's existing rules governing
the trading of equity securities. The securities will trade on NASDAQ
from 8 a.m. to 8 p.m. E.T. NASDAQ has appropriate rules to facilitate
transactions in the securities during all trading sessions. The minimum
price increment for quoting and entry of orders in equity securities
traded on NASDAQ is $0.01, with the exception of securities that are
priced less than $1.00 for which the minimum price increment for order
entry is $0.0001.\14\
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\14\ See, e.g., Rule 4751.
Regulation NMS Rule 612, Minimum Pricing Increment, provides:
a. No national securities exchange, national securities
association, alternative trading system, vendor, or broker or dealer
shall display, rank, or accept from any person a bid or offer, an
order, or an indication of interest in any NMS stock priced in an
increment smaller than $0.01 if that bid or offer, order, or
indication of interest is priced equal to or greater than $1.00 per
share.
b. No national securities exchange, national securities
association, alternative trading system, vendor, or broker or dealer
shall display, rank, or accept from any person a bid or offer, an
order, or an indication of interest in any NMS stock priced in an
increment smaller than $0.0001 if that bid or offer, order, or
indication of interest is priced less than $1.00 per share.
c. The Commission, by order, may exempt from the provisions of
this section, either unconditionally or on specified terms and
conditions, any person, security, quotation, or order, or any class
or classes of persons, securities, quotations, or orders, if the
Commission determines that such exemption is necessary or
appropriate in the public interest, and is consistent with the
protection of investors.
17 CFR 242.612.
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Surveillance
NASDAQ believes that its surveillance procedures are adequate to
address any concerns about the trading of the securities on NASDAQ.
Trading of the securities on NASDAQ will be subject to FINRA's
surveillance procedures for derivative products.\15\ NASDAQ may obtain
information via the Intermarket Surveillance Group (``ISG'') from other
exchanges who are members or affiliates of the ISG.\16\
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\15\ FINRA surveils trading on NASDAQ pursuant to a regulatory
services agreement. NASDAQ is responsible for FINRA's performance
under this regulatory services agreement.
\16\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
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In addition, to the extent that a fund invests in futures
contracts, not more than 10% of the weight of such futures contracts in
the aggregate shall consist of components whose principal trading
market is not a member of ISG or is a market with which the Exchange
does not have a comprehensive surveillance sharing agreement. NASDAQ
has a general policy prohibiting the distribution of material, non-
public information by its employees.
As a general matter, NASDAQ has regulatory jurisdiction over its
Members and their associated persons, which includes any person or
entity controlling a Member, as well as a subsidiary or affiliate of a
Member that is in the securities business. A subsidiary or affiliate of
a Member that does business only in commodities or futures contracts
would not be subject to NASDAQ jurisdiction, but NASDAQ could obtain
information regarding the activities of such subsidiary or affiliate
through surveillance sharing agreements with regulatory organizations
of which such subsidiary or affiliate is a Member.
Trading Halts
With respect to trading halts, in addition to the halt requirements
in the proposed rules, NASDAQ may consider all relevant factors in
exercising its discretion to halt or suspend trading in the securities.
Trading in the securities may be halted because of market conditions or
for reasons that, in the view of NASDAQ, make trading in the securities
inadvisable. These may include: (1) The extent to which trading in the
underlying asset or assets is not occurring; or (2) whether other
unusual conditions or circumstances detrimental to the maintenance of a
fair and orderly market are present. In addition, trading in the
securities will be subject to trading halts caused by extraordinary
market volatility pursuant to NASDAQ's ``circuit breaker'' Rule
4120(a)(11) or by the halt or suspension of the trading of the current
underlying asset or assets.
If the applicable Intraday Indicative Value, value of the
underlying index, or the value of the underlying asset or assets (e.g.,
securities, commodities, currencies, futures contracts, or other
assets) is not being disseminated as required, NASDAQ may halt trading
during the day in which such interruption to the dissemination occurs.
If the interruption to the dissemination of the applicable Intraday
Indicative Value, value of the underlying index, or the value of the
underlying asset or assets persists past the trading day in which it
occurred, NASDAQ will halt trading no later than the beginning of the
trading day following the interruption. In addition, if NASDAQ becomes
aware that the net
[[Page 6849]]
asset value with respect to a series of the securities is not
disseminated to all market participants at the same time, it will halt
trading in such series until such time as the net asset value is
available to all market participants.
Suitability
Currently, NASDAQ Rule 2310 governs Recommendations to Customers
(Suitability), Fair Dealing with Customers, Suitability Obligations to
Institutional Customers, and Direct Participation Programs.
Prior to the commencement of trading of any inverse, leveraged, or
inverse leveraged securities, NASDAQ will inform its Members of the
suitability requirements of NASDAQ Rule 2310 in an Information
Circular. Specifically, Members will be reminded in the Information
Circular that, in recommending transactions in these securities, they
must have a reasonable basis to believe that (1) the recommendation is
suitable for a customer given reasonable inquiry concerning the
customer's investment objectives, financial situation, needs, and any
other information known by such Member, and (2) the customer can
evaluate the special characteristics, and is able to bear the financial
risks, of an investment in the securities. In connection with the
suitability obligation, the Information Circular will also provide that
members must make reasonable efforts to obtain the following
information: (1) The customer's financial status; (2) the customer's
tax status; (3) the customer's investment objectives; and (4) such
other information used or considered to be reasonable by such Member or
registered representative in making recommendations to the customer.
In addition, FINRA has implemented increased sales practice and
customer margin requirements for FINRA members applicable to inverse,
leveraged, and inverse leveraged securities and options on such
securities, as described in FINRA Regulatory Notices 09-31 (June 2009),
09-53 (August 2009) and 09-65 (November 2009) (``FINRA Regulatory
Notices''). Members that carry customer accounts will be required to
follow the FINRA guidance set forth in the FINRA Regulatory Notices.
The Information Circular will reference the FINRA Regulatory Notices
regarding sales practice and customer margin requirements for FINRA
members applicable to inverse, leveraged, and inverse leveraged
securities and options on such securities.
NASDAQ notes that, for such inverse, leveraged, and inverse
leveraged securities, the corresponding funds seek leveraged, inverse,
or leveraged inverse returns on a daily basis, and do not seek to
achieve their stated investment objective over a period of time greater
than one day because compounding prevents the funds from perfectly
achieving such results. Accordingly, results over periods of time
greater than one day typically will not be a leveraged multiple
(+200%), the inverse (-100%) or a leveraged inverse multiple (-200%) of
the period return of the applicable benchmark and may differ
significantly from these multiples. NASDAQ's Information Circular, as
well as the applicable registration statement, will provide information
regarding the suitability of an investment in such securities.
2. Statutory Basis
The proposed rule change, as amended, is consistent with section
6(b) of the Act,\17\ in general, and furthers the objectives of section
6(b)(5),\18\ particularly, in that it is designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
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Specifically, NASDAQ believes that the proposed rule change should
enhance depth and liquidity, and should promote narrower markets in the
subject securities. Furthermore, NASDAQ's listing requirements as
proposed herein are at least as stringent as those of any other
national securities exchange and, consequently, the proposed rule
change is consistent with the protection of investors and the public
interest.
Additionally, the proposal is designed to prevent fraudulent and
manipulative acts and practices, as all of the proposed new products
are subject to existing NASDAQ trading rules, together with specific
requirements for registered market makers, books and record production,
surveillance procedures, suitability and prospectus requirements, and
requisite NASDAQ approvals, all set forth above.
The proposal is also designed to promote just and equitable
principles of trade by way of initial and continued listing standards
which, if not maintained, will result in the discontinuation of trading
in the affected products. These requirements, together with the
applicable NASDAQ equity trading rules (which apply to the proposed
products), ensure that no investor would have an unfair advantage over
another respecting the trading of the subject products. On the
contrary, all investors will have the same access to, and use of,
information concerning the specific products and trading in the
specific products, all to the benefit of public customers and the
marketplace as a whole.
Furthermore, the proposal is designed to remove impediments to and
perfect the mechanism of a free and open market and a national market
system by adopting listing standards that will lead ultimately to the
trading of the proposed new products on NASDAQ, just as they are
currently traded on other exchanges. NASDAQ believes that individuals
and entities permitted to make markets on NASDAQ in the proposed new
products should enhance competition within the mechanism of a free and
open market and a national market system, and customers and other
investors in the national market system should benefit from more depth
and liquidity in the market for the proposed new products.
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, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act.
[[Page 6850]]
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 email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2012-013 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2012-013. This
file number should be included on the subject line if email 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 Web site viewing and
printing in the Commission's Public Reference Section, 100 F Street
NE., Washington, DC 20549-1090, on official business days between 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-2012-013 and should
be submitted on or before March 1, 2012.
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\19\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-2994 Filed 2-8-12; 8:45 am]
BILLING CODE 8011-01-P
