
[Federal Register: February 18, 2009 (Volume 74, Number 31)]
[Notices]
[Page 7622-7625]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18fe09-63]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59396; File No. SR-NASDAQ-2009-004]


Self-Regulatory Organizations; NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change
Consolidating Into a Single Rule Certain Requirements for Products
Traded on the Exchange Pursuant to Unlisted Trading Privileges

February 11, 2009.
    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 30, 2009, NASDAQ Stock Market LLC (``Nasdaq'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The Exchange
has designated the proposed rule change as constituting a non-
controversial rule change under Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal effective
upon filing with the Commission. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change

    The Exchange proposes to adopt rules reflecting the requirements
for trading products on the Exchange pursuant to

[[Page 7623]]

unlisted trading privileges (``UTP'') that have been established in
various new product proposal previously approved by the Commission.
    The text of the proposed rule change is available from Nasdaq's Web
site at http://nasdaq.cchwallstreet.com, at Nasdaq's principal office,
and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item 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 Exchange proposes to amend its rules to reflect certain
requirements for trading products on the Exchange pursuant to UTP that
have been established in various new product proposals previously
approved by the Commission. The Exchange is amending and moving part of
the introductory language of Equity Rule 4420 to become introductory
language to Equity Rule 4421 to provide that it may extend UTP to any
security that is an NMS Stock (as defined in Rule 600 of Regulation
NMS) that is listed on another national securities exchange, as well as
to consolidate the UTP concept within the rulebook. Any such security
will be subject to all of the Exchange's trading rules applicable to
NMS Stocks, unless otherwise noted, including the provisions of Equity
Rules 4120, 4420, 4630, and new Rule 4421 described below. The Exchange
will file with the Commission a Form 19b-4(e) with respect to any such
security that is a ``new derivative securities product'' as defined in
Rule 19b-4(e) under the Act \5\ (defined as a ``UTP Derivative
Security''). In addition, any new derivative securities product traded
on the Exchange will be subject to the criteria described below.
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    \5\ 17 CFR 240.19b-4(e).
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    Proposed Equity Rule 4421(a)(2) provides that the Exchange will
distribute an information circular prior to the commencement of trading
in a UTP Derivative Security, which generally will include the same
information as the information circular provided by the listing
exchange, including: (1) The special risks of trading the UTP
Derivative Security; (2) the Rules of the Exchange that will apply to
the UTP Derivative Security, including Equity Rule 2310, the Exchange's
suitability rule; (3) information about the dissemination of the value
of the underlying assets or indexes; and (4) the applicable trading
hours for the UTP Derivative Security and risks of trading during the
Exchange's pre-market session (7 a.m. to 9:30 a.m.) and post-market
session (4 p.m. to 8 p.m.) due to the lack of calculation or
dissemination of the underlying index value, the intraday indicative
value, or a similar value.
    Proposed Equity Rule 4421(a)(3)(A) reminds Members \6\ that they
are subject to the prospectus delivery requirements under the
Securities Act of 1933, as amended (the ``Securities Act''), unless a
UTP Derivative Security is the subject of an order by the Commission
exempting the product from certain prospectus delivery requirements
under Section 24(d) of the Investment Company Act of 1940 (the ``1940
Act'') and the product is not otherwise subject to prospectus delivery
requirements under the Securities Act. The Exchange will inform its
Members of the application of these provisions to a particular UTP
Derivative Security governed by the 1940 Act by means of an information
circular.
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    \6\ A Member is any registered broker-dealer that has been
admitted to membership in the Exchange.
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    The Exchange is amending Equity Rule 4120(b) to more fully address
trading halts in UTP Derivative Securities traded on the Exchange
pursuant to UTP. As currently in effect, Rule 4120(b) provides for
trading halts of ``Derivative Securities Products,'' which are defined
as a series of Portfolio Depository Receipts, Index Fund Shares,
Managed Fund Shares, Trust Issued Receipts, Commodity-Related
Securities, or securities representing interests in unit investment
trusts or investment companies. Although this definition covers a wide
range of products that would be considered UTP Derivative Securities,
for the avoidance of doubt, the Exchange is explicitly amending the
definition to include all UTP Derivative Securities. The current rule
also contains a definition of ``Required Value'' and provides for
trading halts in certain circumstances where a Required Value is not
being disseminated. Currently, ``Required Value'' is defined to mean
``(i) The value of any index or any commodity-related value underlying
a Derivative Security Product and (ii) the indicative optimized
portfolio value, intraday indicative value, or other comparable
estimate of the value of a share of a Derivative Securities Product
updated regularly during the trading day.'' The Exchange proposes to
amend the definition to also include ``(iii) a net asset value in the
case of a Derivative Securities Product for which a net asset value is
disseminated, and (iv) a `disclosed portfolio' in the case of a
Derivative Securities Product that is a series of managed fund shares
or actively managed exchange-traded funds for which a disclosed
portfolio is disseminated.''
    Thus, as amended, the rule provides that the Exchange, upon
notification by the listing market of a halt due to a temporary
interruption in the calculation or wide dissemination of a Required
Value for a Derivative Securities Product, will immediately halt
trading in that product on the Exchange. If the Required Value
continues not to be calculated or widely disseminated at the
commencement of trading on the Exchange on the next business day, the
Exchange shall not commence trading of the product on that day. If an
interruption in the calculation or wide dissemination of the Required
Value continues, the Exchange may resume trading in the Derivative
Securities Product only if calculation and wide dissemination of the
Required Value resumes or trading in such product resumes on the
listing market.
    The Exchange is also amending Equity Rule 4630, which governs the
activities of registered market makers in Commodity-Related Securities.
A ``Commodity-Related Security'' is defined to mean a security that is
issued by a trust, partnership, commodity pool or similar entity that
invests, directly or through another entity, in any combination of
commodities, futures contracts, options on futures contracts, forward
contracts, commodity swaps, or other related derivatives, or the value
of which is determined by the value of commodities, futures contracts,
options on futures contracts, forward contracts, commodity swaps, or
other related derivatives. A ``commodity'' is defined in Section
1(a)(4) of the Commodity Exchange Act, a definition that includes
currencies. As amended, the rule provides that a registered market
maker in a Commodity-Related Security is prohibited from acting or
registering as a market maker in any commodities, futures contracts,
options on futures

[[Page 7624]]

contracts, forward contracts, commodity swaps, or other related
derivatives underlying such Commodity-Related Security. The rule
further provides that a member acting as a registered market maker in a
Commodity-Related Security must file with the Exchange's Regulation
Department in a manner prescribed by such Department and keep current a
list identifying all accounts for trading in commodities, futures
contracts, options on futures contracts, forward contracts, commodity
swaps, or other related derivatives underlying such Commodity-Related
Security, in which the market maker holds an interest, over which it
may exercise investment discretion, or in which it shares in the
profits and losses. No market maker shall trade in, or exercise
investment discretion with respect to, such underlying commodities,
futures contracts, options on futures contracts, forward contracts,
commodity swaps, or other related derivatives, in an account in which a
market maker, directly or indirectly, controls trading activities, or
has an interest in the profits or losses thereof, that has not been
reported as required by the Rule.
    In addition, a member acting as a registered market maker in a
Commodity-Related Security is obligated to establish adequate
information barriers when such market maker engages in communications
to other departments within the same firm or the firm's affiliates that
involve trading in commodities, futures contracts, options on futures
contracts, forward contracts, commodity swaps, or other related
derivatives underlying such Commodity-Related Security. The member
acting as a registered market maker in a Commodity-Related Security
shall make available to the Exchange's Regulation Department such
books, records or other information pertaining to transactions by such
entity or registered or non-registered employee affiliated with such
entity for its or their own accounts for trading commodities, futures
contracts, options on futures contracts, forward contracts, commodity
swaps, or other related derivatives underlying such Commodity-Related
Security, as may be requested by the Regulation Department. Finally, in
connection with trading a Commodity-Related Security or commodities,
futures contracts, options on futures contracts, forward contracts,
commodity swaps, or other related derivatives underlying a Commodity-
Related Security, the member acting as a market maker in a Commodity-
Related Security shall not use any material nonpublic information
received from any person associated with the member or employee of such
person regarding trading by such person or employee in the commodities,
futures contracts, options on futures contracts, forward contracts,
commodity swaps, or other related derivatives underlying such
Commodity-Related Security.
    The Exchange represents that its surveillance procedures for UTP
Derivative Securities traded on the Exchange will be similar to the
procedures used for equity securities traded on the Exchange and will
incorporate and rely upon existing Exchange surveillance procedures.
The Exchange will closely monitor activity in UTP Derivative Securities
traded on the Exchange pursuant to UTP to deter any potential improper
trading activity. The proposed rule change also provides that the
Exchange will enter into a comprehensive surveillance sharing agreement
(``CSSA'') with a market trading components of the index or portfolio
on which the UTP Derivative Security is based to the same extent as the
listing exchange's rules require the listing market to enter into a
CSSA with such market.
    Finally, the Exchange is amending provisions of Equity Rule 4120
and 4630 that stipulate that the Exchange will file separate proposals
under Section 19(b)(2) of the Act for each issue of Managed Fund Shares
or Commodity-Based Securities that it trades on a UTP basis. Because
the new rules being adopted by the Exchange consolidate the
requirements for trading such securities that have been established in
new product proposals previously approved by the Commission, separate
proposals under Section 19(b)(2) of the Act are no longer required for
trading these securities.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\7\ in general and with
Section 6(b)(5) of the Act,\8\ in particular, in that it would promote
just and equitable principles of trade, remove impediments to, and
perfect the mechanism of, a free and open market and a national market
system, and, in general, protect investors and the public interest by
providing for the trading of securities, including UTP Derivative
Securities, on the Exchange pursuant to UTP, subject to consistent and
reasonable standards.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    Written comments on the proposed rule change were neither solicited
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19b-
4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, as required under Rule
19b-4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and text of the proposed rule change, at least
five days prior to the filing of the proposed rule change.
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    The Exchange has asked the Commission to waive the 30-day operative
delay. The Commission believes that such waiver is consistent with the
protection of investors and the public interest because such waiver
should benefit investors by creating, without undue delay, additional
competition in the trading of UTP Derivative Securities, subject to
consistent and reasonable standards. The proposed rule change is
modeled closely after similar rules of other national securities
exchanges\11\ and does not raise any novel or significant regulatory
issues.Therefore, the Commission designates the proposed rule change as
operative upon filing.\12\
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    \11\ See NSX Rule 15.9 and Securities Exchange Act Release No.
57448 (March 6, 2008), 73 FR 13597 (March 13, 2008) (SR-NSX-2008-
05); ISE Rule 2101 and Securities Exchange Act Release No. 57387
(February 27, 2008), 73 FR 11965 (March 5, 2008) (SR-ISE-2007-99);
and BATS Rule 14.1 and Securities Exchange Act Release No. 58623
(September 23, 2008), 73 FR 57169 (October 1, 2008) (SR-BATS-2008-
004).
    \12\ For purposes only of waiving the operative date of this
proposal, the Commission has considered the rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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    At any time within 60 days of the filing of the proposed rule
change the

[[Page 7625]]

Commission may summarily abrogate such rule change if it appears to the
Commission that such action is necessary or appropriate in the public
interest, for the protection of investors, or otherwise in furtherance
of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2009-004 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2009-004. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room on official
business days between the hours of 10 a.m. and 3 p.m. Copies of such
filing also will be available for inspection and copying at the
principal office of the 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-2009-004 and
should be submitted on or before March 11, 2009.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-3484 Filed 2-17-09; 8:45 am]

BILLING CODE 8011-01-P
