Federal Register / Vol. 71, No. 184 / Friday, September 22, 2006 / Notices 55533 

6 15 U.S.C. 78f(b). 

7 15 U.S.C. 78f(b)(4). 

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

9 17 CFR 240.19b–4(f)(2). 

10 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Changes are marked to the rule text that appears 

in the electronic manual of Nasdaq found at 

http://www.complinet.com/nasdaq. 

Section 6(b) of the Act,6 in general, and 

furthers the objectives of Section 6(b)(4) 

of the Act,7 in particular, in that it is 

designed to provide for the equitable 

allocation of reasonable dues, fees, and 

other charges among CBOE members. 

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 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 

The Exchange neither solicited nor 

received comments on the proposal. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing proposed rule change 

has been designated as a fee change 

pursuant to Section 19(b)(3)(A)(ii) of the 

Act 8 and Rule 19b–4(f)(2) 9 thereunder, 

because it establishes or changes a due, 

fee, or other charge imposed by the 

Exchange. Accordingly, the proposal 

will take effect upon filing with the 

Commission. At any time within 60 

days of the filing of such 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. 

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 

Number SR–CBOE–2006–76 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–CBOE–2006–76. 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. Copies of such filing also will be 

available for inspection and copying at 

the principal office of CBOE. 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–CBOE–2006–76 and should 

be submitted on or before October 13, 

2006. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.10

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 06–8037 Filed 9–21–06; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–54459; File No. SR–

NASDAQ–2006–035] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing and Order Granting Accelerated 

Approval of Proposed Rule Change To 

Amend Existing Rules for Portfolio 

Depository Receipts, Index Fund 

Shares, and Index-Linked Securities 

September 15, 2006. 

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 

September 14, 2006, The NASDAQ 

Stock Market LLC (‘‘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. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons and to 

approve the proposed rule change on an 

accelerated basis. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Nasdaq proposes to amend its existing 

rules for portfolio depository receipts, 

index fund shares, and index-linked 

securities to provide that an eligible 

index may be calculated following a 

methodology weighting components 

based on one or more of the following: 

Sales, cash flow, book value, and 

dividends. 

The text of the proposed rule change 

is below. Proposed new language is 

italicized; there are no proposed 

deletions.3

* * * * * 

4420. Quantitative Listing Criteria 

(a)–(h) No Change. 

(i) Portfolio Depository Receipts 

(1)–(2) No Change. 

(3)(A) No Change. 

(3)(B) Index Methodology and 

Calculation 

(i) The index underlying a series of 

Portfolio Depository Receipts will be 

calculated based on [either] the market 

capitalization, modified market 

capitalization, price, equal-dollar or 

modified equal-dollar weighting or a 

methodology weighting components of 

the index based on any, some or all of 

the following: Sales, cash flow, book 

value and dividends; 

(3)(B)(ii)–(iii) No Change. 

(3)(C)–(E) No Change. 

(4)–(7) No Change. 

(j) Index Fund Shares 

(1)–(2) No Change. 

(3)(A) No Change. 

(3)(B) Index Methodology and 

Calculation 

(i) The index underlying a series of 

Index Fund Shares will be calculated 

based on [either] the market 

capitalization, modified market 

capitalization, price, equal-dollar or 

modified equal-dollar weighting or a 


sroberts on PROD1PC70 with NOTICES
55534 Federal Register / Vol. 71, No. 184 / Friday, September 22, 2006 / Notices 

4 17 CFR 240.19b–4(e). 

5Portfolio depository receipts and index fund 

shares are registered investment companies under 

the Investment Company Act of 1940 and are 

referred to in this filing as exchange traded funds 

(‘‘ETFs’’). 

6 17 CFR 240.19b–4(e). 

7 17 CFR 240.19b–4. 

8 In each instance, the index methodology will set 

forth the means of calculating sales, cash flow, book 

value, and dividends. 

9 17 CFR 240.19b–4(e). 

10 15 U.S.C. 78f(b). 

11 15 U.S.C. 78f(b)(5). 

methodology weighting components of 

the index based on any, some or all of 

the following: Sales, cash flow, book 

value and dividends; 

(3)(B)(ii)–(iii) No Change. 

(3)(C)–(E) No Change. 

(4)–(7) No Change. 

(k)–(l) No Change. 

(m) Index-Linked Securities 

(1)–(6) No Change. 

(7) No Change. 

(7)(i)–(ii) No Change. 

(iii) Each index will be calculated 

based on a capitalization, modified 

capitalization, price, equal-dollar or 

modified equal-dollar weighting or a 

methodology weighting components of 

the index based on any, some or all of 

the following: Sales, cash flow, book 

value and dividends; 

(7)(iv)–(ix) No Change. 

(8)–(10) No Change. 

* * * * * 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

Nasdaq included statements concerning 

the purpose of, and basis for, the 

proposed rule change 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 III 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 

According to Nasdaq, the purpose of 

this proposed rule change is to amend 

Nasdaq’s existing generic listing 

standards pursuant to Rule 19b–4(e) of 

the Act 4 for portfolio depository 

receipts, index fund shares 5 and indexlinked securities to provide that an 

eligible index may be calculated 

following a methodology weighting 

components based on one or more of the 

following: Sales, cash flow, book value 

and dividends. This methodology is also 

referred to as the fundamentals 

weighting methodology. 

Nasdaq currently has generic listing 

standards (within the meaning of Rule 

19b–4(e) of the Act 6), which permit the 

listing and trading of various qualifying 

ETFs and index linked notes (‘‘ILNs’’) 

subject to the procedures contained in 

Rule 19b–4(e). The existence of a 

generic listing standard allows 

qualifying ETFs and ILNs to list or trade 

without the need to file a rule change 

for each security under Rule 19b–4 of 

the Act.7 By amending its generic listing 

standards pursuant to Rule 19b–4(e), 

Nasdaq intends to reduce the time frame 

for listing portfolio depository receipts, 

index fund shares and index-linked 

securities that rely on an index utilizing 

a fundamentals weighting methodology 

and thereby reduce the burdens on 

issuers and other market participants. 

The current rules already provide that 

eligible indexes may be calculated based 

on either the market capitalization, 

modified market capitalization, price, 

equal-dollar or modified equal-dollar 

weighting methodology. The proposed 

rule change will specify one additional 

methodology. The fundamentals 

weighting methodology allows the 

weighting of the individual components 

of the index based on any, some or all 

of the following: sales, cash flow, book 

value, and dividends.8

‘‘Sales’’ refers to the total of reported 

operating revenues less various 

adjustments to gross sales, such as 

returns, discounts, allowances, excise 

taxes, insurance charges, sales taxes, 

and value added taxes. In calculating 

the sales value, an index provider may 

opt to average the company’s applicable 

figures for several prior years (e.g., five 

prior years as reflected in the company’s 

Annual Report on Form 10–K). 

‘‘Cash Flow’’ refers to operating 

income plus depreciation. For example, 

a manufacturer typically reports its 

operating income as its net sales plus 

other operating income minus the cost 

of goods sold and selling, general and 

administrative expenses. Depreciation 

expense for a manufacturer typically 

includes the depreciation that is directly 

related to or associated with tangible 

fixed assets and includes amortization 

of fixed assets that are part of plant, 

property and equipment, such as leased 

assets, leasehold improvements, and 

internal use software. For example, for 

a manufacturer depreciation expense 

excludes amortization of intangible 

assets. For banks, financial companies, 

and REITs, operating income refers to 

their total operating revenue minus total 

operating expenses. For REITs, 

depreciation expense includes 

depreciation relating to real estate 

property and includes corporate fixed 

asset depreciation if not separated from 

property depreciation. In calculating 

cash flow, an index provider may opt to 

average the company’s applicable 

figures for several prior years (e.g., five 

prior years as reflected in the company’s 

Annual Report on Form 10–K). 

‘‘Book Value’’ refers to a company’s 

book value at the index review date. In 

accordance with accounting principles, 

book value generally means total 

common equity, which is derived from 

adding share capital and additional 

paid-in capital to retained earnings. In 

calculating book value, an index 

provider may opt to average the 

company’s applicable figures for several 

prior years (e.g., five prior years as 

reflected in the company’s Annual 

Report on Form 10–K). 

‘‘Dividends’’ refers to total dividend 

distributions, including both special 

and regular dividends paid in cash. 

Generally, the total dividend amount 

that is declared to all classes of common 

shareholders includes regular cash, as 

well as special cash dividends, and 

excludes returns of capital and in-specie 

dividends. In calculating dividends, an 

index provider may opt to average the 

company’s applicable figures for several 

prior years (e.g., five prior years as 

reflected in the company’s Annual 

Report on Form 10–K). 

Nasdaq believes that the 

fundamentals weighting methodology is 

a transparent methodology that provides 

investors with an alternative to 

capitalization weighted index 

methodologies. Nasdaq believes that by 

amending its generic listing standards to 

provide for this new index calculation 

methodology, it is providing investors 

with more investment choices and 

thereby increasing competition in the 

marketplace. Nasdaq notes that products 

based on indexes using this 

methodology are already subject to the 

other requirements of the generic listing 

standards pursuant to Rule 19b–4(e).9

Therefore, Nasdaq requests accelerated 

approval in order to avoid unnecessary 

delay in the listing of otherwise eligible 

securities linked to fundamentals 

weighted indexes. 

2. Statutory Basis 

Nasdaq believes that the proposed 

rule change is consistent with the 

provisions of Section 6 of the Act,10 in 

general and with Section 6(b)(5) of the 

Act,11 in particular, in that it is designed 


sroberts on PROD1PC70 with NOTICES
Federal Register / Vol. 71, No. 184 / Friday, September 22, 2006 / Notices 55535 

12 In approving this rule change, the Commission 

notes that it has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

13 15 U.S.C. 78f(b)(5). 

14 17 CFR 240.19b–4(e). 

15According to Nasdaq, in each instance, the 

index methodology will set forth the means of 

calculating sales, cash flow, book value, and 

dividends and thus will be transparent. 

16 17 CFR 240.19b–4(e). 

17 Id. 

18 15 U.S.C. 78s(b)(2). 

19 15 U.S.C. 78s(b)(2). 

20 17 CFR 200.30–3(a)(12). 

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. Nasdaq believes that the 

proposed rule change should facilitate 

the listing and trading of portfolio 

depository receipts, index fund shares, 

and index-linked securities that rely on 

an index utilizing a fundamentals 

weighting methodology and should 

thereby reduce the burdens on issuers 

and other market participants. 

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. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NASDAQ–2006–035 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2006–035. 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. Copies of such filing also will be 

available for inspection and copying at 

the principal office of the Nasdaq. 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–2006–035 and 

should be submitted on or before 

October 13, 2006. 

IV. Commission’s Findings and Order 

Granting Accelerated Approval of the 

Proposed Rule Change 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a national 

securities exchange.12 In particular, the 

Commission finds that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act,13 which requires, 

among other things, that the rules of a 

national securities exchange be 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism for a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest. 

The proposed rule change amends 

Nasdaq’s existing generic listing 

standards pursuant to Rule 19b–4(e) 14

for portfolio depository receipts, index 

fund shares, and index-linked securities 

to provide that an eligible index may be 

calculated following the ‘‘fundamentals 

weighting’’ or ‘‘fundamental index’’

methodology. This index calculation 

methodology weights components based 

on one or more of the following: sales, 

cash flow, book value, and dividends.15

Including this index calculation 

methodology in Nasdaq’s generic listing 

standards will provide investors with 

more investment choices by offering an 

alternative to the other index 

methodologies, such as capitalizationweighted ones. The Commission notes 

that the indexes that would be based on 

the fundamentals weighting 

methodology will already be subject to 

the requirements of the generic listing 

standards pursuant to Rule 19b-4(e) of 

the Act,16 including trading volume and 

liquidity requirements. In addition, by 

amending its generic listing standards 

pursuant to Rule 19b–4(e) of the Act,17

Nasdaq should reduce the time frame 

for listing portfolio depository receipts, 

index fund shares, and index-linked 

securities that rely on an index utilizing 

a fundamentals weighting methodology. 

The proposed rule change should 

therefore facilitate the listing and 

trading of such securities and thereby 

reduce the burdens on issuers and other 

market participants. 

The Exchange has requested 

accelerated approval of the proposed 

rule change. The Commission finds 

good cause for approving the proposed 

rule change prior to the 30th day after 

the date of publication of the notice of 

filing in the Federal Register. The 

Commission believes the proposed rule 

change should provide investors with 

an alternative to the current index 

calculation methodologies. In addition, 

the proposed rule change should reduce 

the burden on issuers and market 

participants to list and trade portfolio 

depository receipts, index fund shares, 

and index-linked securities based on the 

fundamentals weighting methodology. 

Therefore, the Commission finds good 

cause, consistent with Section 19(b)(2) 

of the Act,18 to approve the proposed 

rule change on an accelerated basis. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,19 that the 

proposed rule change (SR–NASDAQ–

2006–035) is approved on an 

accelerated basis. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.20

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 06–8043 Filed 9–21–06; 8:45 am] 

BILLING CODE 8010–01–P 


sroberts on PROD1PC70 with NOTICES