78076 Federal Register / Vol. 69, No. 249 / Wednesday, December 29, 2004 / Notices 

8 15 U.S.C. 78s(b)(3)(A)(ii).

9 17 CFR 19b–4(f)(2).

10For purposes of calculating the 60-day 

abrogation period, the Commission considers the 

abrogation period to have begun on December 15, 

2004, the date on which the Commission received 

Amendment No. 1.

11 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3Amendment No. 1 and Amendment No. 2 were 

deficient for technical reasons and were withdrawn 

on December 14 and December 15, 2004, 

respectively.

4Amendment No. 3 slightly modifies the text of 

the proposed rule to make clear that the exclusion 

in the definition of an Affiliate Security would 

encompass other exchange traded funds listed on 

The Nasdaq Stock Market. The amendment also 

further clarifies and explains the proposed rule 

change. Amendment No. 3 is incorporated into this 

notice.

5Changes are marked to the rule text that appears 

in the electronic NASD manual found at http://

www.nasd.com.

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has not solicited, and 

does not intend to solicit, comments on 

this proposed rule change. The 

Exchange has not received any 

unsolicited written comments from 

members or other interested parties. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change, as 

amended, has become effective pursuant 

to Section 19(b)(3)(A)(ii) of the Act 8 and 

Rule 19b–4(f)(2) 9 thereunder, in that it 

establishes or changes a due, fee, or 

other charge imposed by the Exchange. 

Accordingly, the proposal will take 

effect upon filing the amended proposal 

with the Commission. At any time 

within 60 days after the filing of 

Amendment No. 1 to the proposed rule 

change, the 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.10

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 rulecomments@sec.gov. Please include File 

No. SR–ISE–2004–36 on the subject 

line. 

Paper comments:

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

450 Fifth Street, NW, Washington, DC 

20549–0609. 

All submissions should refer to File 

Number SR–ISE–2004–36. 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 Commissions 

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. Copies of such filing also will be 

available for inspection and copying at 

the principal office of the ISE. 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–ISE–2004–36 and should be 

submitted by January 19, 2005.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.11

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. E4–3864 Filed 12–28–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–50897; File No. SR–NASD–

2004–169] 

Self-Regulatory Organizations; 

National Association of Securities 

Dealers, Inc.; Notice of Filing of 

Proposed Rule Change To Adopt 

Additional Listing Standards 

Applicable to the Securities of the 

Nasdaq Stock Market, Inc. or an 

Affiliate 

December 21, 2004. 

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 November 

2, 2004, the National Association of 

Securities Dealers, Inc. (‘‘NASD’’), 

through its subsidiary, The Nasdaq 

Stock Market, Inc. (‘‘Nasdaq’’), filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by Nasdaq. On 

December 14, 2004, and December 15, 

2004, Nasdaq filed Amendments No. 1 

and No. 2, respectively.3 On December 

15, 2004, Nasdaq filed Amendment No. 

3 to the proposal.4 The Commission is 

publishing this notice to solicit 

comments on the proposed rule change, 

as amended, from interested persons.

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

Nasdaq proposes to adopt additional 

listing standards that would apply to a 

security listed on Nasdaq by Nasdaq or 

its affiliate (collectively defined in the 

proposed rule as ‘‘Nasdaq Affiliates’’). 

The text of the proposed rule change 

is below. Proposed new language is in 

italics; proposed deletions are in 

brackets.5

* * * * *

Rule 4370. Additional Requirements for 

Nasdaq-Listed Securities Issued by 

Nasdaq or Its Affiliates 

(a) For purposes of this Rule 4370, the 

terms below are defined as follows:

(1) ‘‘Nasdaq Affiliate’’ means Nasdaq 

and any entity that directly or indirectly, 

through one or more intermediates, 

controls, is controlled by, or is under 

common control with Nasdaq, where 

‘‘control’’ means that the one entity 

possesses, directly or indirectly, voting 

control of the other entity either through 

ownership of capital stock or other 

equity securities or through majority 

representation on the board of directors 

or other management body of such 

entity.

(2) ‘‘Affiliate Security’’ means any 

security issued by a Nasdaq Affiliate, 

with the exception of Portfolio 

Depository Receipts, as defined in Rule 

4420(i)(1)(A), and Index Fund Shares as 

defined in Rule 4420(j)(1)(A).

(b) Upon initial and throughout 

continued inclusion of the Affiliate 

Security in The Nasdaq Stock Market, 

Nasdaq shall:

(1) file a report each month with the 

Commission detailing Nasdaq’s 

monitoring of:

Federal Register / Vol. 69, No. 249 / Wednesday, December 29, 2004 / Notices 78077

6The NASD currently would be considered a 

Nasdaq Affiliate for purposes of the proposed rule 

change.

7NASD Rule 4350(a)(2).

8 15 U.S.C. 78o–3.

9 15 U.S.C. 78o–3(b)(6).

(A) the Nasdaq Affiliate’s compliance 

with the provisions of the Rule 4200, 

4300 and 4400 Series; and

(B) the trading of the Affiliate 

Security, which shall include 

summaries of all related surveillance 

alerts, complaints, regulatory referrals, 

trades cancelled or adjusted pursuant to 

Rule 11890, investigations, 

examinations, formal and informal 

disciplinary actions, exception reports 

and trading data of such security.

(2) engage on independent accounting 

firm once a year to review and prepare 

a report on the Affiliate Security to 

ensure that the Nasdaq Affiliate is in 

compliance with the Rule 4200, 4300 

and 4400 Series and promptly forward 

to the Commission a copy of the report 

prepared by the independent 

accounting firm.

(c) In the event that Nasdaq 

determines that the Nasdaq Affiliate is 

not in compliance with any of the Rule 

4200, 4300 and 4400 Series, Nasdaq 

shall file a report with the Commission 

at the same time that Nasdaq notifies 

the Nasdaq Affiliate of its noncompliance. The report shall identify 

the date of non-compliance, type of 

non-compliance and any other material 

information conveyed to the Nasdaq 

Affiliate in the notice of noncompliance. Within five (5) business 

days of receipt of a plan of compliance 

from the Nasdaq Affiliate, Nasdaq shall 

notify the Commission of such receipt, 

whether the plan of compliance was 

accepted by Nasdaq or what other 

action was taken with respect to the 

plan and the time period provided to 

regain compliance with the Rule 4200, 

4300 and 4400 Series, if any.

* * * * *

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 

Nasdaq is proposing a rule change to 

adopt a new Rule 4370 that would 

impose additional reporting 

requirements on Nasdaq should Nasdaq 

or an affiliate of Nasdaq list a security 

on The Nasdaq Stock Market 

(collectively, the ‘‘Nasdaq Affiliates’’).6

In the event that a Nasdaq Affiliate lists 

a security on Nasdaq (the ‘‘Affiliate 

Security’’), the proposed rule change 

would require Nasdaq to file a report 

with the Commission on a monthly 

basis detailing Nasdaq’s monitoring of 

(1) the Nasdaq Affiliate’s compliance 

with the provisions of Rule 4200, 4300 

and 4400 Series (which include bid 

price requirements, and quantitative 

and qualitative maintenance 

requirements) and (2) the trading of the 

Affiliate Security, including summaries 

of all related surveillance alerts, 

complaints, regulatory referrals, trades 

cancelled or adjusted pursuant to NASD 

Rule 11890, investigations, 

examinations, formal and informal 

disciplinary actions, exception reports 

and trading data.

Nasdaq also would be required to 

commission an annual review and 

report by an independent accounting 

firm of the compliance of the Affiliate 

Security with Rule 4200, 4300 and 4400 

Series. Nasdaq would be required to 

furnish promptly a copy of the report to 

the Commission. 

Nasdaq also would be required to 

notify the Commission at the same time 

it notifies the Nasdaq Affiliate if Nasdaq 

determines that the Nasdaq Affiliate was 

not in compliance with any of its listing 

standards. The proposed rule change 

also would require Nasdaq to notify the 

Commission within five business days 

of its receipt of a plan of compliance 

from the Nasdaq Affiliate. Nasdaq’s 

notification also would advise the 

Commission on whether the plan of 

compliance was accepted by Nasdaq or 

what other action was taken with 

respect to the plan and the time period 

provided to regain compliance with the 

Rule 4200, 4300 and 4400 Series, if any. 

Nasdaq believes that the additional 

requirements contained in the proposed 

rule change would provide additional 

assurance that any Affiliate Securities 

listed on Nasdaq by a Nasdaq Affiliate 

comply with Nasdaq’s listing standards 

on an on-going basis. Nasdaq believes 

that the proposed rule change would 

eliminate any perception of a potential 

conflict of interest if a Nasdaq Affiliate 

seeks to list a security on The Nasdaq 

Stock Market. 

Nasdaq is proposing to exclude from 

the definition of Rule 4370—solely for 

purposes of this rule—securities that 

meet the definition of ‘‘Portfolio 

Depository Receipts’’ under NASD Rule 

4420(i)(1)(A) and ‘‘Index Fund Shares’’

under NASD Rule 4420(j)(1)(A). These 

securities, commonly referred to as 

‘‘exchange traded funds’’ or ‘‘ETFs,’’ are 

issued by open-end management 

investment companies based on a 

portfolio of securities. Often this 

portfolio mirrors a foreign or domestic 

stock index. An ETF is designed to 

provide investment results that 

correspond generally to the price and 

yield performance of the underlying 

portfolio of securities. Nasdaq believes 

that such securities do not present the 

same concerns as other securities, even 

if issued by a Nasdaq Affiliate. ETFs, 

which do not represent investments in 

an individual company, are already 

exempt from a number of listing 

standards including corporate 

governance rules standards, such as the 

requirement to have a board of directors 

comprised of a majority of independent 

directors and to have a code of conduct 

applicable to all employees and 

directors.7 Nasdaq does not believe that 

the additional reporting requirements in 

the proposed rule change would provide 

any value in this context because ETFs 

would not constitute an investment in a 

Nasdaq Affiliate. Further, these issuers 

are already subject to a comprehensive 

scheme of regulation pursuant to the 

Investment Company Act of 1940.

2. Statutory Basis 

Nasdaq believes that the proposed 

rule change, as amended, is consistent 

with the provisions of Section 15A of 

the Act,8 in general, and with Section 

15A(b)(6) of the Act,9 in particular, in 

that it is designed to prevent fraudulent 

and manipulative acts and practices, to 

promote just and equitable principles of 

trade, remove impediments to a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest, and 

does not permit unfair discrimination 

among issuers. Specifically, the rule 

change would provide additional 

reporting safeguards for certain listed 

securities where conflicts of interest 

might arise.

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. 

78078 Federal Register / Vol. 69, No. 249 / Wednesday, December 29, 2004 / Notices 

6 17 CFR 200.30–3(a)(12).

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).

5NASD understands that the Commission’s 

proposed Regulation NMS may have an impact on 

this pilot program. Accordingly, NASD has 

represented that it will undertake to work with the 

Commission to ensure that the pilot program would 

be consistent with the rules and regulations 

contained in Regulation NMS, if and when it is 

adopted. Telephone Conversation between Andrea 

Orr, Assistant General Counsel, NASD, and 

Ronesha A. Butler, Special Counsel, Division of 

Market Regulation, Commission, on December 20, 

2004.

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 

Within 35 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 self-regulatory 

organization consents, the Commission 

will: 

(A) By order approve 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, as amended, 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 rulecomments@sec.gov. Please include File 

Number SR–NASD–2004–169 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

450 Fifth Street, NW., Washington, DC 

20549–0609. 

All submissions should refer to File 

Number SR–NASD–2004–169. 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 

Section, 450 Fifth Street, NW., 

Washington, DC 20549. Copies of such 

filing also will be available for 

inspection and copying at the principal 

office of the NASD. 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–NASD–

2004–169 and should be submitted on 

or before January 19, 2005.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.6

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 04–28442 Filed 12–28–04; 8:45 am] 

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–50893; File No. SR–NASD–

2004–176) 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change by the 

National Association of Securities 

Dealers, Inc. To Extend an Existing 

Pilot Relating to Manning PriceImprovement Standards 

December 20, 2004. 

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 December 

2, 2004, the National Association of 

Securities Dealers, Inc. (‘‘NASD’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change, as described in 

Items I, II, and III below, which Items 

have been prepared by NASD. NASD 

has filed this proposed rule change 

pursuant to 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.

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

NASD is proposing to extend through 

June 30, 2005, the current pilot priceimprovement standards for decimalized 

securities contained in NASD 

Interpretive Material 2110–2, ‘‘Trading 

Ahead of Customer Limit Order’’

(‘‘Manning Interpretation’’ or 

‘‘Manning’’). Without such an 

extension, these standards will expire 

on December 31, 2004. NASD proposes 

to extend the pilot’s expiration date to 

June 30, 2005,5 NASD does not propose 

to make any substantive changes to the 

pilot. The text of the proposed rule 

change is available at the NASD’s 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, 

NASD 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. NASD 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 

NASD’s Manning Interpretation 

requires an NASD member firm to 

provide a minimum level of price 

improvement to an incoming order in an 

NMS or SmallCap security if the firm 

chooses to trade as principal with the 

incoming order at a price superior to a 

customer limit order that it currently 

holds. If the firm fails to provide the 

minimum level of price improvement to 

the incoming order, the firm must 

execute the held customer limit order. 

Generally, if a firm fails to provide the 

requisite amount of price improvement 

and also fails to execute the held