
[Federal Register Volume 78, Number 132 (Wednesday, July 10, 2013)]
[Notices]
[Pages 41489-41492]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16529]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69928; File No. SR-NASDAQ-2013-094]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness to Conform Rule 5705 
Governing Exchange Traded Funds to the Listing Requirements of Another 
Market

 July 3, 2013.
    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 June 27, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I and II 
below, which Items have been prepared by NASDAQ. 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.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    NASDAQ is filing with the Commission a proposal to amend Rule 5705 
(Exchange Traded Funds: Portfolio Depository Receipts and Index Fund 
Shares) regarding the definition of Derivative Securities Products, 
weight of component stocks of an index or portfolio, averaging minimum 
notional value traded per month, and minimum number of component 
stocks. The Exchange is making these changes to

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conform its rules with those of another market.
    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, NASDAQ included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. NASDAQ has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

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

1. Purpose
    The purpose of this proposed rule change is to amend Rule 
5705(b)(3) and (b)(4) regarding the definition of Derivative Securities 
Products, weight of component stocks of an index or portfolio,\3\ 
averaging minimum notional value traded per month, and minimum number 
of component stocks.
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    \3\ ``Index or portfolio'' is discussed in Rule 
5705(b)(3)(A)(i).
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    The Exchange is making the proposed changes to conform its Rule 
5705(b) with the rule of another market, namely NYSE Arca (``Arca''). 
The proposed changes are all based on, and virtually identical to, 
equivalent provisions in Arca Equities Rule 5.2(j)(3), Commentary 
.01(a)(A) and Commentary .02(a)(5) (the ``Arca rule'').\4\
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    \4\ While in all instances the rule changes proposed by the 
Exchange are done to conform Exchange Rule 5705(b) with Arca 
Equities Rule 5.2(j)(3), Commentary .01(a)(A), and in all instances 
are based on Arca rule language, the rule changes proposed by the 
Exchange are tailored to work within the existing structure of 
Exchange Rule 5705(b).
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    By way of background, the Exchange has ETF listing provisions in 
Rule 5705 for different types of ETFs, including domestic and 
international Portfolio Depository Receipts (``PDRs'') \5\ in 
subsection (a) and Index Fund Shares (``IFSs'') \6\ in subsection (b). 
Subsection (a) and (b) include listing provisions pursuant to Rule 19b-
4(e) under the Act \7\ indicating that the component stocks of (i) an 
index or portfolio of U.S. Component Stocks \8\ underlying a series of 
PDRs or IFSs shall meet five criteria; \9\ and (ii) regarding global 
indexes or portfolios,\10\ underlying a series of PDRs or IFSs shall 
meet five criteria.\11\ Rule 5705(a) and (b) are like the Arca rule, 
except that Rule 5705(b) lacks certain language regarding listing IFSs. 
This proposal simply adds language to subsections (b)(3) and (b)(4) of 
Rule 5705 to make it similar to the Arca rule.
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    \5\ The term ``Portfolio Depository Receipt'' means a security: 
(i) That is based on a unit investment trust (``Trust'') which holds 
the securities which comprise an index or portfolio underlying a 
series of Portfolio Depository Receipts; (ii) that is issued by the 
Trust in a specified aggregate minimum number in return for a 
``Portfolio Deposit'' consisting of specified numbers of shares of 
stock and/or a cash amount, a specified portfolio of fixed income 
securities and/or a cash amount and/or a combination of the above; 
(iii) that, when aggregated in the same specified minimum number, 
may be redeemed from the Trust which will pay to the redeeming 
holder the stock and/or cash, fixed income securities and/or cash 
and/or a combination thereof then comprising the ``Portfolio 
Deposit''; and (iv) that pays holders a periodic cash payment 
corresponding to the regular cash dividends or distributions 
declared with respect to the component securities of the securities 
index or portfolio of securities underlying the Portfolio Depository 
Receipts, less certain expenses and other charges as set forth in 
the Trust prospectus. Rule 5705(a)(1)(A).
    \6\ The term ``Index Fund Share'' means a security: (i) That is 
issued by an open-end management investment company based on a 
portfolio of stocks or fixed income securities or a combination 
thereof, that seeks to provide investment results that correspond 
generally to the price and yield performance or total return 
performance of a specified foreign or domestic stock index, fixed 
income securities index or combination thereof; (ii) that is issued 
by such an open-end management investment company in a specified 
aggregate minimum number in return for a deposit of specified 
numbers of shares of stock and/or a cash amount, a specified 
portfolio of fixed income securities and/or a cash amount and/or a 
combination of the above, with a value equal to the next determined 
net asset value; and (iii) that, when aggregated in the same 
specified minimum number, may be redeemed at a holder's request by 
such open-end investment company which will pay to the redeeming 
holder the stock and/or cash, fixed income securities and/or cash 
and/or a combination thereof, with a value equal to the next 
determined net asset value. Rule 5705(b)(1)(A).
    \7\ 17 CFR 240.19b-4(e).
    \8\ The term ``U.S. Component Stock'' means an equity security 
that is registered under Sections 12(b) or 12(g) of the Act, or an 
American Depository Receipt, the underlying equity security of which 
is registered under Sections 12(b) or 12(g) of the Act. Rule 
5705(b)(1)(D).
    \9\ Rule 5705(a)(3)(A)(i) a. through e. and (b)(3)(A)(i) a. 
through e.
    \10\ The components of a global (aka international) index or 
portfolio consists of either only Non-U.S. Component Stocks or both 
U.S. Component Stocks and Non-U.S. Component Stocks. The term ``Non-
U.S. Component Stock'' means an equity security that (a) is not 
registered under Sections 12(b) or 12(g) of the Act, (b) is issued 
by an entity that is not organized, domiciled or incorporated in the 
United States, and (c) is issued by an entity that is an operating 
company (including Real Estate Investment Trusts (REITs) and income 
trusts, but excluding investment trusts, unit trusts, mutual funds, 
and derivatives). Rule 5705(a)(1)(D) and (b)(1)(E).
    \11\ Rule 5705(a)(3)(A)(ii) a. through e and (b)(3)(A)(ii) a. 
through e.
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The Proposed Rule Changes
    First, the Exchange proposes to exclude ``Derivative Securities 
Products'' from Rule 5705(b)(3)(A)(i) a., b., and c. for U.S. Indexes 
or portfolios, and from Rule 5705(b)(3)(A)(ii) a., b., and c. for 
international or global indexes or portfolios. ``Derivative Securities 
Products'' include the following types of products: ETFs consisting of 
PDRs and IFSs (Rule 5705); Trust Issued Receipts (Rule 5720); Managed 
Fund Shares (Rule 5735); and Commodity-Based Trust Shares, Currency 
Trust Shares, Commodity Index Trust Shares, Commodity Futures Trust 
Shares, Partnership Units, Trust Units, Managed Trust Shares, (Rule 
5711).\12\ Arca's definition of Derivative Securities Products \13\ 
includes one product (Paired Trust Shares) that is not included in the 
Exchange's definition of Derivative Securities Products. As such, the 
Exchange and Arca definitions of Derivative Securities Products as 
proposed are therefore similar. In addition, the Exchange proposes in 
Rule 5705(b) to exclude Derivative Securities Products in exactly the 
same places, and in same manner, as the equivalent sections of the Arca 
rule.
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    \12\ Definitions of or discussions regarding the noted products 
can be found in the specified Exchange rules.
    \13\ Arca states in Equities Rule 5.2(j)(3), Commentary 
.01(a)(A) that Derivative Securities Products include Units (known 
as ETFs on the Exchange) and securities defined in Section 2 of Arca 
Equity Rule 8.
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    Second, the Exchange proposes to modify Rule 5705(b)(3)(A)(i)(b) 
and 5705(b)(3)(A)(ii)(b) to indicate the appropriate value or weight of 
the index and the averaged minimum notional value traded per month. 
Specifically, these proposed sections would indicate that component 
stocks (excluding Derivative Securities Products) that in the aggregate 
account for at least 70% of the weight of the index or portfolio 
(excluding Derivative Securities Products) each shall have a minimum 
monthly trading volume of 250,000 shares or minimum notional volume 
traded per month of $25,000,000, averaged over the last six months.\14\ 
The proposed changes would make Rule 5705(b)(3)(A)(i)(b) and 
5705(b)(3)(A)(ii)(b) exactly like the equivalent sections of the Arca 
rule. The proposed changes allow setting the weight of the index or 
portfolio at 70%

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and averaging trading volume over six months, as allowed by the Arca 
rule.
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    \14\ Rule 5705(b)(3)(A)(ii)(b), which deals with global 
(international) indexes or portfolios is, however, written in terms 
of worldwide monthly trading volume and global notional volume.
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    Third, the Exchange proposes to modify Rule 5705(b)(3)(A)(i)(d) and 
5705(b)(3)(A)(ii)(d) to indicate how many component stocks an index or 
portfolio must have at a minimum. Specifically, the proposed sections 
would indicate that the index or portfolio shall include a minimum of 
13 component stocks; provided, however, that there shall be no minimum 
number of component stocks if either one or more series of IFSs or PDRs 
constitute, at least in part, components underlying a series of IFSs, 
or one or more series of Derivative Securities Products account for 
100% of the weight of the index or portfolio.\15\ This change would 
indicate that the Exchange, like Arca, does not require a set minimum 
number of component stocks if, for example, IFSs or PDRs (which must 
each meet specified Exchange listing standards in their own right) 
underlie a series of IFSs. Again, the proposed changes would make Rule 
5705(b)(3)(A)(i)(d) and 5705(b)(3)(A)(ii)(d) exactly like the 
equivalent sections of the Arca rule.
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    \15\ Rule 5705(b)(3)(A)(ii)(d), however, which deals with global 
(international) indexes or portfolios, requires a minimum of 20 
component stocks.
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    Fourth, the Exchange proposes to modify Rule 5705(b)(3)(A)(i)(c) 
and 5705(b)(3)(A)(ii)(c) to clarify that, to the extent applicable, the 
five most heavily weighted component stocks would not exceed a given 
weight. Specifically, these proposed sections would, like the Arca 
rule, indicate that, to the extent applicable, the five most heavily 
weighted component stocks (excluding Derivative Securities Products) 
shall not exceed 65% of the weight of the index or portfolio.\16\
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    \16\ Rule 5705(b)(3)(A)(ii)(c), however, which deals with global 
(international) indexes or portfolios, is written in terms of 60% of 
the weight of the index or portfolio.
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    Fifth, the Exchange proposes to modify Rule 5705(b)(4)(A)(v) to 
insert ``one consisting entirely of'' into the existing rule text. The 
proposed rule text would state that an underlying index or portfolio 
(excluding one consisting entirely of exempted securities) must include 
securities from a minimum of 13 non-affiliated issuers. As with all 
other proposed rule changes, this is done to conform Rule 
5705(b)(4)(A)(v) to the Arca rule.
    All of the rule changes proposed are done solely to align Exchange 
Rule 5705 and the Arca rule. The Exchange believes that by conforming 
the rules, and allowing listing opportunities on the Exchange that are 
already allowed by rule on another market, the proposal would offer 
another venue for listing and trading Index Fund Shares on equivalent 
terms, and thereby promote competition.\17\
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    \17\ No other changes are made or intended by this filing and 
existing listing and trading rules continue to be applicable to 
Index Fund Shares.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \18\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \19\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest. For the reasons noted in the filing, the Exchange proposes to 
amend Rule 5705 regarding the definition of Derivative Securities 
Products, weight of component stocks of an index or portfolio, 
averaging minimum notional value traded per month, and minimum number 
of component stocks. The proposed changes do nothing more than match 
Exchange rules with what is currently available on other exchanges. The 
Exchange believes that by conforming its rules and allowing listing 
opportunities on the Exchange that are already allowed by rule on 
another market, the proposal would offer another venue for listing and 
trading Index Fund Shares products and thereby promote broader 
competition among exchanges.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 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 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, where the 
current variance in the rules of the exchanges limits competition, the 
proposal will allow listing equivalent products on the Exchange, 
thereby promoting increased competition for listings among markets.

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

    Written comments were neither solicited nor received.

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

    Because the 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 if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \20\ and Rule 19b-
4(f)(6)(iii) thereunder.\21\
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6)(iii). 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 the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest 
because it may enable the Exchange to compete more effectively for 
listings, and this competition could inure to the benefit of issuers 
and market participants generally. For this reason, the Commission 
waives the operative delay and designates the proposed rule change to 
be operative upon filing.\22\
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    \22\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2013-094 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-2013-094. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your

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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 Web site viewing and printing in the Commission's Public 
Reference Room on official business days between the hours of 10:00 
a.m. and 3:00 p.m. Copies of such filing also will be available for 
inspection and copying at the principal offices 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-2013-094, and should 
be submitted on or before July 31, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-16529 Filed 7-9-13; 8:45 am]
BILLING CODE 8011-01-P


