[Federal Register Volume 72, Number 46 (Friday, March 9, 2007)]
[Notices]
[Pages 10801-10805]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-4193]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55386; File No. SR-NASDAQ-2007-016]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change Relating to the Trading of 16 Commodity-Related Securities 
Pursuant to Unlisted Trading Privileges on a Pilot Basis

March 2, 2007.
    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 March 1, 2007, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``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 substantially prepared by the Exchange. 
This order provides notice of the proposed rule change and approves the 
proposal on an accelerated basis.
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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 Substance 
of the Proposed Rule Change

    Nasdaq proposes to amend Rule 4630 to govern trading in any 
Commodity-Related Security (as defined below) and to make conforming 
amendments to Rule 4120. Pursuant to the amended rule and in accordance 
with the terms and conditions specified in this filing, Nasdaq also 
proposes to trade, pursuant to unlisted trading privileges, the 16 
Commodity-Related Securities described below.
    The text of the proposed rule change is available from Nasdaq's Web 
site at http://nasdaq.complinet.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 III 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
    Nasdaq is proposing to trade the following securities pursuant to 
UTP for a pilot period of three months beginning on March 5, 2007: (1) 
Shares of the PowerShares DB Commodity Index Tracking Fund, (2) shares 
of the PowerShares DB G10 Currency Harvest Fund, (3) shares of the 
PowerShares DB Agricultural Fund, (4) shares of the PowerShares DB Oil 
Fund, (5) shares of the PowerShares DB Base Metals Fund, (6) shares of 
the PowerShares DB Energy Fund, (7) shares of the PowerShares DB Silver 
Fund, (8) shares of the PowerShares DB Gold Fund, (9) shares of the 
PowerShares DB Precious Metals Fund, (10) iPath Dow Jones-AIG Commodity 
Index Total Return Exchange-Traded Notes, (11) iPath GSCI Total Return 
Index Exchange-Traded Notes, (12) iPath Goldman Sachs Crude Oil Total 
Return Index Exchange-Traded Notes, (13) shares of the iShares GSCI 
Commodity-Indexed Trust, (14) units of the United States Oil Fund, LP, 
(15) Claymore MACROShares Oil Up Tradeable Shares, and (16) Claymore 
MACROShares Oil Down Tradeable Shares (collectively, the ``Covered 
Securities''). The Commission previously approved the original listing 
and trading of each of the Covered Securities by the New York Stock 
Exchange (``NYSE'') or the American Stock Exchange (``Amex'').\3\ Since 
the time of their listing on NYSE or Amex, the Covered Securities have 
traded on an over-the-counter (``OTC'') basis on systems operated as 
facilities of NASD by Nasdaq and its affiliates. Specifically, the 
products are currently traded on the ITS/CAES System, which Nasdaq 
operates for NASD pursuant to a Transitional System and Regulatory 
Services Agreement (the ``Transitional Agreement'').
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    \3\ Securities Exchange Act Release No. 53105 (January 11, 
2006), 71 FR 3129 (January 19, 2006) (SR-Amex-2005-059) (PowerShares 
DB Commodity Index Tracking Fund); Securities Exchange Act Release 
No. 54351 (August 23, 2006), 71 FR 51245 (August 29, 2006) (SR-Amex-
2006-44) (PowerShares DB G10 Currency Harvest Fund); Securities 
Exchange Act Release No. 55029 (December 29, 2006), 72 FR 806 
(January 8, 2007) (SR-Amex-2006-76) (seven PowerShares DB commodity 
funds); Securities Exchange Act Release No. 53876 (May 25, 2006), 71 
FR 32158 (June 2, 2006) (SR-NYSE-2006-16) (iPath Dow-Jones AIG 
Commodity Index Total Return Exchange-Traded Notes); Securities 
Exchange Act Release No. 53849 (May 22, 2006), 71 FR 30706 (May 30, 
2006) (SR-NYSE-2006-20) (iPath GSCI Total Return Index Exchange-
Traded Notes); Securities Exchange Act Release No. 54177 (July 19, 
2006), 71 FR 42700 (July 27, 2006) (SR-NYSE-2006-19) (iPath Goldman 
Sachs Crude Oil Total Return Index Exchange-Traded Notes); 
Securities Exchange Act Release No. 54013 (June 16, 2006), 71 FR 
36372 (June 26, 2006) (SR-NYSE-2006-17) (iShares GSCI Commodity-
Indexed Trust); Securities Exchange Act Release No. 53582 (March 31, 
2006), 71 FR 17510 (April 6, 2006) (SR-Amex-2005-127) (United States 
Oil Fund, LP); Securities Exchange Act Release No. 54839 (November 
29, 2006), 71 FR 70804 (December 6, 2006) (SR-Amex-2006-82) 
(MACROShares Oil Up and Oil Down Tradeable Shares).
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    Under Rule 602 of Regulation NMS (the ``Quote Rule''),\4\ NASD is 
required to collect the best bid, best offer, and quotation sizes 
communicated otherwise than on an exchange by each NASD member acting 
in the capacity of an ``OTC market maker'' for any ``NMS stock,'' \5\ 
unless the executed volume of such member, during the most recent 
calendar quarter, comprised one percent or less of the aggregate 
trading volume for such security (the ``1% Rule'').\6\
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    \4\ 17 CFR 242.602.
    \5\ ``OTC market maker'' means any dealer that holds itself out 
as being willing to buy from and sell to its customers, or others, 
in the United States, an NMS stock for its own account on a regular 
or continuous basis otherwise than on a national securities exchange 
in amounts of less than block size. See 17 CFR 242.600(b)(52). ``NMS 
stock'' means any security or class of securities for which 
transaction reports are collected, processed, and made available 
pursuant to an effective transaction reporting plan. See 17 CFR 
242.600(b)(47).
    \6\ OTC market makers that are not subject to the 1% Rule may 
nevertheless elect to communicate quotations in exchange-listed 
securities to NASD, in which case NASD must disseminate such 
quotations.
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    Nasdaq has operated ITS/CAES under the Transitional Agreement in 
order to allow NASD to fulfill its Quote Rule obligation to provide a 
quotation facility for non-Nasdaq exchange-listed securities (``CQS 
Securities''). On March 5, 2007, NASD expects to begin to fulfill its 
obligation to provide a quotation facility for CQS Securities without 
Nasdaq's assistance through its Alternative Display Facility (the 
``ADF'').\7\ Also at that time, Nasdaq expects to stop operating the 
ITS/CAES System.
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    \7\ NASD already uses the ADF to fulfill its obligations under 
the Quote Rule with respect to Nasdaq-listed securities.
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    On July 28, 2006, the Commission granted NASD a limited exemption 
\8\

[[Page 10802]]

from the Quote Rule and granted OTC market makers a limited exemption 
from the 1% Rule by providing that an OTC market maker is not required 
to provide quotations to NASD, and NASD is not required to collect and 
disseminate such quotations, if the OTC market maker provides its 
quotations to a national securities exchange that in turn disseminates 
the quotations of each such OTC market maker, even if such quotations 
do not reflect the exchange's best bid and offer. Thus, because Nasdaq 
disseminates depth-of-book information reflecting the quotations of 
each of its market makers, an OTC market maker may satisfy its 1% Rule 
obligations by quoting on Nasdaq.
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    \8\ See Letter from Robert L.D. Colby, Acting Director, Division 
of Market Regulation, Commission, to T. Grant Callery, Executive 
Vice President and General Counsel, NASD (July 28, 2006).
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    The Covered Securities have been eligible to trade on ITS/CAES 
because the Quote Rule requires NASD, as a national securities 
association, to provide a means for its members to post quotes for all 
NMS stocks. As an exchange, however, Nasdaq may not trade securities on 
a UTP basis unless Nasdaq ``has in effect a rule or rules providing for 
transactions in the class or type of security to which the exchange 
extends unlisted trading privileges,'' \9\ and, in the case of ``new 
derivatives securities products'' within the meaning of SEC Rule 19b-
4(e),\10\ it either has generic listing standards applicable to the 
product in question or receives Commission approval for a rule filing 
under Section 19 of the Act \11\ to allow trading of the product. The 
Covered Securities are new derivative securities products for which 
Nasdaq does not have generic listing standards, and therefore Nasdaq 
must obtain Commission approval of a filing before trading them as an 
exchange.
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    \9\ 17 CFR 240.12f-5.
    \10\ ``New Derivative Security Product'' is defined as any type 
of option, warrant, hybrid securities product, or any other 
security, other than a single equity option or a security futures 
product, whose value is based, in whole or in part, upon the 
performance of, or interest in, an underlying instrument. See 17 CFR 
240.19b-4(e).
    \11\ 15 U.S.C. 78s.
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    It had been Nasdaq's expectation that it would not trade all of the 
Covered Securities as of March 5, 2007, in light of low trading volumes 
of some of the Covered Securities and the administrative requirements 
associated with product-specific filings. Based on input from its 
members and NASD, however, Nasdaq has concluded that there are OTC 
market makers in each of the Covered Securities that may be subject to 
the 1% Rule, based on recent trading volumes. Moreover, although the 
ADF is scheduled to become operational for CQS Securities on March 5, 
2007, an NASD member that is not already an ADF participant might not 
have sufficient time to move its quotations in the Covered Securities 
to the ADF by March 5. Accordingly, Nasdaq believes that it must begin 
trading the Covered Securities by March 5 in order to prevent 
disruptions in the markets for the Covered Securities and forestall 
regulatory compliance issues for OTC market makers subject to the 1% 
Rule in the Covered Securities.
    It does not appear that there would be sufficient time between now 
and March 5 for Nasdaq and Commission staff to process a detailed 
filing regarding each of the Covered Securities. Moreover, in cases 
where Covered Securities are issued by pooled investment vehicles that 
invest in commodity futures that are traded on futures exchanges that 
are not members of the Intermarket Surveillance Group (``ISG''), 
securities exchanges trading the Covered Securities have entered into 
regulatory information-sharing agreements with such futures exchanges. 
At this time, Nasdaq is in the process of entering into such agreements 
with ICE Futures and the Kansas Board of Trade, and is in the process 
of amending its existing agreement with the New York Mercantile 
Exchange (``NYMEX'') to cover additional commodities. Nasdaq has just 
completed an agreement with the London Metals Exchange, and expects to 
complete the remaining agreements in the near future, but not by March 
5, 2007.
    In light of all of these considerations, Nasdaq is seeking 
Commission approval for a proposal to trade the Covered Securities for 
a three-month pilot period. During the pilot period, Nasdaq will 
complete all required regulatory information sharing agreements and 
will submit detailed product-specific filings covering each of the 
Covered Securities.
    Nasdaq deems the Covered Securities to be equity securities, thus 
rendering trading in the Covered Securities subject to its existing 
rules governing the trading of equity securities. During the period 
while a Covered Security is trading under this pilot filing, its 
trading hours will be 9:30 a.m. to 4 p.m., Eastern Time (``ET''). 
Nasdaq may, however, propose longer trading hours for some of the 
Covered Securities in a subsequent product-specific filing, depending 
on the extent of dissemination of intraday values and index values 
related to the Covered Security.
    Nasdaq will halt trading in a Covered Security under the conditions 
specified in Nasdaq Rules 4120 and 4121. The conditions for a halt 
include a regulatory halt by the listing market. UTP trading in the 
Covered Securities will also be governed by provisions of Nasdaq Rule 
4120(b) relating to temporary interruptions in the calculation or wide 
dissemination of (i) the Intraday Indicative Value, Intraday Optimized 
Portfolio Value, or other comparable intraday valuation for a Covered 
Security; or (ii) the value of any index or any commodity-related value 
underlying a Covered Security.\12\ Additionally, Nasdaq may cease 
trading a Covered Security if other unusual conditions or circumstances 
exist which, in the opinion of Nasdaq, make further dealings on Nasdaq 
detrimental to the maintenance of a fair and orderly market. Nasdaq 
will also follow any procedures with respect to trading halts as set 
forth in Nasdaq Rule 4120(c). Finally, Nasdaq will stop trading a 
Covered Security if the listing market delists it.
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    \12\ Nasdaq is amending Rule 4120 to make it applicable to any 
Commodity-Related Security (as defined below) and to include the 
term ``commodity-related value'' in the definition of a Required 
Value that must be disseminated under the conditions described in 
the rule. Thus, for example, the term ``commodity-related value'' 
would include the price of crude oil futures contracts on which the 
United States Oil Fund is based.
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    Nasdaq believes that its surveillance procedures are adequate to 
address any concerns about the trading of the Covered Securities on 
Nasdaq. Trading of the Covered Securities through ITS/CAES is currently 
subject to NASD's surveillance procedures for equity securities in 
general and ETFs in particular. After Nasdaq begins to trade the 
Covered Securities as an exchange, NASD, on behalf of Nasdaq, will 
continue to surveil Nasdaq trading, including Nasdaq trading of the 
Covered Securities. Nasdaq's transition to exchange status will not 
result in any change in the surveillance process with respect to the 
Covered Securities.\13\
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    \13\ Surveillance of all trading on NASD facilities operated by 
Nasdaq, including the trading of the Covered Securities, is 
currently being conducted by NASD. After Nasdaq begins to trade the 
Covered Securities as an exchange, NASD will continue to surveil 
trading pursuant to a regulatory services agreement. Nasdaq is 
responsible for NASD's performance under this regulatory services 
agreement.
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    Nasdaq is able to obtain information regarding trading in the 
Covered Securities and the underlying futures through its members in 
connection with the proprietary or customer trades that such members 
effect on any relevant market. In addition, Nasdaq may obtain trading 
information via the Intermarket Surveillance Group (``ISG'') from other 
exchanges who are members or affiliates of the ISG, including the 
Chicago Board

[[Page 10803]]

of Trade. In addition, Nasdaq has a regulatory information sharing 
agreement with NYMEX covering gold and silver futures, and is in the 
process of amending the agreement to cover crude oil, heating oil, 
natural gas, copper, and unleaded gasoline. Nasdaq has also just 
entered into a regulatory sharing agreement with the London Metals 
Exchange related to aluminum, copper, lead, nickel, tin, and zinc. 
Nasdaq is also in the process of entering into information-sharing 
agreements with ICE Futures related to crude oil and gas oil, and with 
the Kansas Board of Trade related to wheat.
    Nasdaq will inform its members in Information Circulars of the 
special characteristics and risks associated with trading the Covered 
Securities. Specifically, the Information Circulars will discuss the 
following: (a) Applicable procedures for purchases and redemptions of 
Covered Securities; (b) Nasdaq Rule 2310, which imposes suitability 
obligations on Nasdaq members with respect to recommending transactions 
in Covered Securities to customers; (c) how information regarding 
applicable intraday values is disseminated; (d) prospectus delivery 
requirements; and (e) trading information.
    In addition, the Information Circulars will reference that the 
Covered Securities are subject to various fees and expenses described 
in their applicable Registration Statements. The Information Circulars 
will also reference 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 
such as aluminum, gold, crude oil, heating oil, corn, and wheat, or the 
futures contracts on which the value of the certain Covered Securities 
are based. The Information Circulars will describe the public 
availability of information about the Covered Securities and underlying 
indexes or prices. The Information Circular will also discuss any 
relief granted by the Commission or the staff from any rules under the 
Act.
    In November 2006, the Commission approved Nasdaq Rule 4630 to 
govern the trading of Commodity-Based Trust Shares.\14\ Commodity-Based 
Trust Shares were defined as trust-issued receipts based on the value 
of an underlying commodity or index of commodities held by a trust. 
Nasdaq is now proposing to amend the rule to make it apply broadly to 
trading in any security issued by any 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-Related Security'').\15\ All of the Covered Securities 
under this filing are Commodity-Related Securities and therefore 
governed by the amended rule. Under the amended rule:
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    \14\ Securities Exchange Act Release No. 54765 (November 16, 
2006), 71 FR 67668 (November 22, 2006) (SR-NASDAQ-2006-009).
    \15\ The amended rule is thus intended to apply to instruments 
that have been defined as ``investment shares,'' ``commodity-based 
trust shares,'' ``currency trust shares,'' ``commodity index trust 
shares,'' or ``partnership units'' under the rules of Amex and NYSE 
Arca. The amended rule is also intended to apply to securities that 
have been defined as ``paired trust shares'' under such rules, with 
a reference price that is related to commodities, futures contracts, 
options on futures contracts, forward contracts, commodity swaps, or 
other related derivatives.
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    <bullet> A member acting as a registered market maker in a 
Commodity-Related Security will be obligated to establish adequate 
information barriers when such market maker engages in inter-
departmental communications. For purposes of a Commodity-Related 
Security, ``inter-departmental communications'' are defined to include 
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.
    <bullet> A member acting as a registered market maker in a 
Commodity-Related Security must file with Nasdaq Regulation in a manner 
prescribed by Nasdaq Regulation 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, that the market 
maker may have or over which it may exercise investment discretion.
    <bullet> A member acting as a registered market maker in a 
Commodity-Related Security shall make available to Nasdaq Regulation 
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 Nasdaq Regulation.
    <bullet> 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 amended rule also requires members to provide a prospectus to 
all purchasers of a newly issued Commodity-Related Security. Finally, 
the amended rule stipulates that Nasdaq will file proposals under 
Section 19(b) of the Act before trading separate and distinct 
Commodity-Based Securities designated on different underlying 
commodity-related investments, and that the proposal filed with respect 
to particular Commodity-Related Security will specify the applicable 
trading hours for such Commodity-Related Security.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \16\ in general and Section 6(b)(5) of the Act \17\ in 
particular, in that 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. In addition, Nasdaq believes that the proposal is 
consistent with Rule 12f-5 under the Act \18\ because it deems the 
Covered Securities to be an equity securities, thus rendering trading 
in the Covered Securities subject to Nasdaq's existing rules governing 
the trading of equity securities.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ 17 CFR 240.12f-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 that is not

[[Page 10804]]

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. 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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#b0c2c5dcd59dd3dfddddd5dec4c3f0c3d5d39ed7dfc6"><span class="__cf_email__" data-cfemail="bdcfc8d1d890ded2d0d0d8d3c9cefdced8de93dad2cb">[email protected]</span></a>. Please include 
File Number SR-NASDAQ-2007-016 on the subject line.

Paper Comments

    <bullet> 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-2007-016. 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 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-2007-016 and should be submitted on or before 
March 30, 2007.

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.\19\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\20\ which 
requires that an exchange have rules designed, among other things, 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. The Commission believes that this proposal should benefit 
investors by increasing competition among markets that trade the 
Covered Securities.
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    \19\ In approving this rule change, the Commission notes that it 
has considered the proposal's impact on efficiency, competition, and 
capital formation. See 15 U.S.C. 78c(f).
    \20\ 15 U.S.C. 78f(b)(5).
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    In addition, the Commission finds that the proposal is consistent 
with Section 12(f) of the Act,\21\ which permits an exchange to trade, 
pursuant to UTP, a security that is listed and registered on another 
exchange.\22\ The Commission notes that it previously approved the 
listing and trading of each of the Covered Securities on either NYSE or 
Amex.\23\ The Commission also finds that the proposal is consistent 
with Rule 12f-5 under the Act,\24\ which provides that an exchange 
shall not extend UTP to a security unless the exchange has in effect a 
rule or rules providing for transactions in the class or type of 
security to which the exchange extends UTP. The Exchange has 
represented that it meets this requirement because it deems the Covered 
Securities to be equity securities, thus rendering trading in the 
Covered Securities subject to the Exchange's existing rules governing 
the trading of equity securities.
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    \21\ 15 U.S.C. 78l(f).
    \22\ Section 12(a) of the Act, 15 U.S.C. 78l(a), generally 
prohibits a broker-dealer from trading a security on a national 
securities exchange unless the security is registered on that 
exchange pursuant to Section 12 of the Act. Section 12(f) of the Act 
excludes from this restriction trading in any security to which an 
exchange ``extends UTP.'' When an exchange extends UTP to a 
security, it allows its members to trade the security as if it were 
listed and registered on the exchange even though it is not so 
listed and registered.
    \23\ See supra note 3.
    \24\ 17 CFR 240.12f-5.
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    The Commission further believes that the proposal is consistent 
with Section 11A(a)(1)(C)(iii) of the Act,\25\ which sets forth 
Congress' finding that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities. Quotations for and last sale information regarding the 
Covered Securities are disseminated through the facilities of the CTA 
and the Consolidated Quotation System. Furthermore, (i) the Intraday 
Indicative Value, Intraday Optimized Portfolio Value, or other 
comparable intraday valuation for a Covered Security; or (ii) the value 
of any index or any commodity-related value underlying a Covered 
Security, is calculated by the original listing market and published 
via the facilities of the Consolidated Tape Association on a 15-second 
delayed basis throughout the trading hours for the Covered Securities. 
In addition, if the listing market halts trading when either (i) the 
Intraday Indicative Value, Intraday Optimized Portfolio Value, or other 
comparable intraday valuation for a Covered Security; or (ii) the value 
of any index or any commodity-related value underlying a Covered 
Security, is not being calculated or disseminated, the Exchange would 
halt trading in such Covered Security.
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    \25\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    The Commission notes that, if a Covered Security should be delisted 
by the listing exchange, the Exchange would no longer have authority to 
trade the Covered Security pursuant to this order.
    In support of this proposal, the Exchange has made the following 
representations:
    1. The Exchange's surveillance procedures are adequate to properly 
monitor Exchange trading of the Covered Securities.
    2. Prior to the commencement of trading, the Exchange would inform 
its members in an Information Bulletin of the special characteristics 
and risks associated with trading the Covered Securities.
    3. Prior to the commencement of trading, the Exchange would inform 
its members in an Information Bulletin the requirement that members 
deliver a prospectus to investors purchasing newly issued Covered 
Securities prior to or concurrently with the confirmation of a 
transaction.

[[Page 10805]]

    This approval order is conditioned on the Exchange's adherence to 
these representations.
    Exchanges that trade commodity-related securities generally have in 
place surveillance arrangements with markets that trade the underlying 
commodities. The Commission notes that the Exchange has indicated that 
it currently is in the process of entering into information-sharing 
agreements with the ICE Futures and the Kansas Board of Trade, as well 
as amending its current information sharing agreement with NYMEX. 
Although the Exchange has not finalized these agreements, the 
Commission believes nevertheless that the Exchange's proposal to trade 
the Covered Securities on a pilot basis is consistent with the Act in 
view of (1) the limited duration of the pilot period (three months), 
(2) the Exchange's representation that these information-sharing 
agreements would be complete ``in the near future,'' and (3) the fact 
that the Exchange must submit a proposed rule change addressing each 
Covered Security, to continue trading the securities after the 
expiration of the pilot period.
    The Commission finds good cause for approving this proposal before 
the thirtieth day after the publication of notice thereof in the 
Federal Register. As noted previously, the Commission previously found 
that the listing and trading of each of the Covered Securities by 
either NYSE or Amex is consistent with the Act. The Commission 
presently is not aware of any regulatory issue that should cause it to 
revisit those findings or would preclude the trading of the Covered 
Securities on the Exchange pursuant to UTP. Furthermore, accelerated 
approval of this proposal is necessary to facilitate compliance by 
certain OTC market makers with the 1% Rule. Market disruption could 
result if these OTC market makers have no venue where they can publish 
their quotations in the Covered Securities. For these reasons, the 
Commission finds good cause to approve the amended proposal on an 
accelerated basis.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\26\ that the proposed rule change (SR-NASDAQ-2007-016), be and it 
hereby is, approved on an accelerated basis for a three-month pilot 
period which will commence on March 5, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\27\
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    \26\ 15 U.S.C. 78s(b)(2).
    \27\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-4193 Filed 3-8-07; 8:45 am]
BILLING CODE 8010-01-P


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