68486 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Notices 

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

8 15 U.S.C. 78f(b)(5). 9 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Amendment No. 1 replaced the original filing in 

its entirety. 

distributing a Regulatory Information 

Circular prior to the implementation of 

any change. 

2. Statutory Basis 

The Exchange believes the proposal is 

consistent with Section 6(b) of the Act 7, 

in general, and furthers the objectives of 

Section 6(b)(5) of the Act,8 in particular, 

in that it is designed to promote just and 

equitable principles of trade, remove 

impediments to and perfect the 

mechanisms of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest in that it would promote 

efficient interaction of market maker 

quotations. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange believes the proposed 

rule change does not 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 

No written comments were solicited 

or received by the Exchange on this 

proposal. 

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 Exchange consents, 

the Commission will: 

(A) By order approve the 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–ISE–2005–48 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–9303. 

All submissions should refer to File 

Number SR–ISE–2005–48. 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 the 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–ISE–2005–48 and should be 

submitted on or before December 1, 

2005. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.9

Jonathan G. Katz, 

Secretary. 

[FR Doc. 05–22416 Filed 11–9–05; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52725; File No. SR–NASD–

2005–118] 

Self-Regulatory Organizations; 

National Association of Securities 

Dealers, Inc.; Notice of Filing and 

Order Granting Accelerated Approval 

of a Proposed Rule Change and 

Amendment No. 1 Thereto Relating to 

the Listing and Trading of 9% Targeted 

Income Strategic Total Return 

SecuritiesSM Linked to the CBOE 

Nasdaq–100 BuyWrite Index 

November 3, 2005. 

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 30, 2005, the National 

Association of Securities Dealers, Inc. 

(‘‘NASD’’), through its subsidiary, The 

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

filed with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change as described 

in Items I and II below, which Items 

have been prepared by Nasdaq. On 

October 14, 2005, Nasdaq filed 

Amendment No. 1 to the proposed rule 

change.3 The Commission is publishing 

this notice to solicit comments on the 

proposed rule change from interested 

persons and is approving the proposal 

on an accelerated basis. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

Nasdaq proposes to list and trade 9% 

Targeted Income Strategic Total Return 

SecuritiesSM (‘‘9% STRS’’ or ‘‘Notes’’), 

the return on which is based upon the 

CBOE Nasdaq–100 BuyWrite Index 

(‘‘BXN Index’’ or ‘‘Index’’) and issued by 

Morgan Stanley. The text of the 

proposed rule change is available on the 

NASD’s Web site (http:// 

www.nasd.com), at the principal offices 

of the Nasdaq, 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 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Notices 68487 

4Telephone conference between Jonathan Cayne, 

Associate General Counsel, Nasdaq, and Geoffrey 

Pemble, Special Counsel, Division of Market 

Regulation (‘‘Division’’), Commission, on November 

1, 2005 (relating to additional descriptive material 

about the Notes provided in prospectus 

supplement). 

5 Id. 

6On any trading day, the Adjustment Amount is 

the sum of (i) 9% multiplied by the Issue Price 

multiplied by the number of calendar days since the 

previous calculation of NEW divided by 365 plus 

(ii) 2% multiplied by NEV on the previous trading 

day multiplied by the number of calendar days 

since the previous calculation of NEV divided by 

365. 

7The BXN Index is similar to Chicago Board 

Options Exchange’s (‘‘CBOE’’) BXM and BXD 

indexes, which are buy-writes on the S&P 500 and 

the Dow Jones Industrial Average, respectively. The 

Commission has previously, on multiple occasions, 

approved the listing and trading of notes linked to 

the BXM and BXD indexes. See Securities Exchange 

Act Release Nos. 51966, (July 1, 2005), 70 FR 40069 

(July 12, 2005) (approving an exception to the 

requirement in the American Stock Exchange LLC 

(‘‘Amex’’) ‘‘generic’’ listing standards pursuant to 

Rule 19b–4(e) for index-linked notes that index 

values be disseminated at least every 15 seconds, 

thereby allowing the listing and trading of notes 

linked to the BXM and BXD even though the BXM 

and BXD values are not so disseminated); 51840 

(June 14, 2005), 70 FR 35468 (June 20, 2005) 

(approving the listing and trading of JPMorgan 

Chase notes linked to the BXD Index); 51634 (April 

29, 2005), 70 FR 24138 (May 6, 2005) (approving 

the listing and trading of Wachovia notes linked to 

the BXM Index); 51426 (March 23, 2005), 70 FR 

16315 (March 30, 2005) (approving the listing and 

trading of Morgan Stanley notes linked to the BXM 

Index); and 50719 (November 22, 2004), 69 FR 

69644 (November 30, 2004) (approving the listing 

and trading of Morgan Stanley notes linked to the 

BXM Index). 

8Morgan Stanley and Nasdaq have entered into 

a non-exclusive license agreement providing for the 

use of the Index by Morgan Stanley in connection 

with the Notes. Nasdaq is not responsible for and 

will not participate in the issuance of the Notes. 

9A ‘‘buy-write’’ is a conservative options strategy 

in which an investor buys a stock or portfolio and 

writes call options on the stock or portfolio. This 

strategy is also known as a ‘‘covered call’’ strategy. 

A buy-write strategy provides option premium 

income to cushion decreases in the value of an 

equity portfolio, but will underperform stocks in a 

rising market. A buy-write strategy tends to lessen 

overall volatility in a portfolio. 

10The BXN Index consists of a long position in 

the component securities of the Nasdaq-100 Index 

and options on the Nasdaq-100 Index. The 

Commission has approved the listing of numerous 

securities linked to the performance of the Nasdaq100 Index as well as options on the Nasdaq-100 

Index. See, e.g., Securities Exchange Act Release 

Nos. 50916 (December 22, 2004), 69 FR 78508 

(December 30, 2004) (approving the listing and 

trading of Performance Leveraged Upside Securities 

based on the value of the Nasdaq-100 Index); 48065 

(June 19, 2003), 68 FR 38414 (June 27, 2003) 

(approving the listing and trading of Performance 

Leveraged Upside Securities based on the value of 

the Nasdaq-100 Index); 45429 (February 11, 2002), 

67 FR 7438 (February 19, 2002) (approving the 

Continued 

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 

Nasdaq proposes to list and trade the 

Notes. The Notes provide for a return 

based upon the BXN Index. 

Description of Notes 

The Notes are non-convertible debt 

issued by Morgan Stanley that are due 

on October 30, 2011 and have a 

principal amount and issue price of $10. 

The Notes will trade as a single, 

exchange-listed security. However, the 

principal amount is initially reduce by 

underwriting commissions of 1.20%, so 

that the Notes, in fact, are initially 

valued at $9.88, which is known as the 

initial net entitlement value (‘‘Initial 

NEV’’). Additional fees of 2% each year 

reduce the Net Entitlement Value 

(‘‘NEV’’). Because the initial NEV is 

1.20% less than the issue price of the 

securities and because the 2% per 

annum adjustment amount reduces the 

NEV over the term of the securities, the 

BXN Index must increase for the 

investor to receive an amount upon sale, 

exchange, redemption or at maturity 

equal to the issue price for each 

security. Thus, unlike ordinary debt, the 

Notes have no guaranteed return of 

principal and do not pay interest.4

The Notes will pay 9% per annum, 

payable monthly beginning November 

30, 2005. If the investor exchanges the 

Notes, or Morgan Stanley calls the Notes 

the investor will receive accrued but 

unpaid interim payments on the 

exchanged or redeemed Notes in 

exchange for a reduction of the NEV of 

the Notes (‘‘Adjustment Amount’’). This 

Adjustment Amount takes into account 

the interim payments on the Notes. As 

a result, for investing in the Notes, the 

investor will receive current income in 

the form of the interim payments on the 

Notes in exchange for a reduction in the 

NEV of the Notes.5

The payout on the Notes upon 

exchange, upon redemption, or at 

maturity will be based on the applicable 

NEV of the securities determined on a 

valuation date, as compared to the 

Initial NEV. 

For each trading day, the NEV is equal 

to $9.88 (e.g., the Initial NEV) 

multiplied by the ratio of the BXN Index 

closing value on that trading day over 

the closing value of the Index on the 

pricing date (‘‘Initial BXN Index Value’’) 

minus the Adjustment Amount 6 as of 

that trading day. In other words: 

NEV NEV BXN

BXN T T

T

T

= 



 

 −  −

−

1

1

* Adjustment Amount

Where 

T = each trading day 

BXNT = the closing value of the BXN 

Index on T. 

The Notes are cash-settled in U.S. 

dollars and do not give the holder any 

right to receive a portfolio security, 

dividend payments or any other 

ownership right or interest in the 

portfolio or index of securities 

comprising the Index. The Commission 

has previously approved the listing of 

options on, and other securities the 

performance of which have been linked 

to or based on similar and parallel buywrite indexes.7

Beginning in October 2008, upon at 

least 10 but not more than 30 days 

notice to the holders, Morgan Stanley 

may redeem the Notes each quarter on 

certain dates specified in the prospectus 

(‘‘Exchange Date’’). In addition, prior to 

October 2008, Morgan Stanley may 

redeem the Notes for mandatory 

exchange on any Exchange Date if the 

NEV (which is a value calculated as 

described in the immediately following 

paragraph) equals or is less than $2.00 

on any trading day. Furthermore, during 

the period from January 2006 to July 

2011, a holder may exchange the Notes 

each quarter on certain specified dates 

for an amount of cash for each security 

equal to the NEV, plus accrued but 

unpaid interim payments, subject to a 

minimum of at least 10,000 Notes. The 

payout on the Notes upon exchange, 

upon redemption, or at maturity will be 

based on the applicable NEV of the 

securities determined on a valuation 

date, as compared to the Initial NEV. 

Description of the Index 

The BXN Index 8 is a benchmark 

index designed to measure the 

performance of a hypothetical ‘‘buywrite’’ 9 strategy on the Nasdaq-100 

Index.10 Developed by the CBOE in 


EN10NO05.313</MATH>
68488 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Notices 

listing and trading of Enhanced Return Notes 

Linked to the Nasdaq-100 Index); 45024 (November 

5, 2001), 66 FR 56872 (November 13, 2001) 

(approving the listing and trading of Enhanced 

Return Notes Linked to the Nasdaq-100 Index); 

44913 (October 9, 2001), 66 FR 52469 (October 15, 

2001) (approving the listing and trading of 

Performance Leveraged Upside Securities based 

upon the performance of the Nasdaq-100 Index); 

43000 (June 30, 2000), 65 FR 42409 (July 10, 2000) 

(approving the listing and trading of options based 

upon one-tenth of the value of the Nasdaq-100 

Index); 41119 (February 26, 1999), 64 FR 11510 

(March 9, 1999) (approving the listing and trading 

of Portfolio Depositary Receipts based on the 

Nasdaq-100 Index); and 33428 (January 5, 1994), 59 

FR 1576 (January 11, 1994) (approving the listing 

and trading of options on the Nasdaq-100 Index). 

As of the close of business on September 30, 

2005, the adjusted market capitalization of the 

securities included in the Index ranged from a high 

of $178 billion to a low of $3 billion. As of the same 

date, the average daily trading volume for these 

same securities since the beginning of 2005 ranged 

from a high of 67 million shares to a low of 450,000 

shares. 

11See supra note 7. 

12The daily rate of return on the covered Nasdaq100 portfolio is based on (a) the change in the 

closing value of the stocks in the Nasdaq-100 

portfolio, (b) the value of ordinary cash dividends 

on the stocks underlying the Nasdaq-100 that are 

trading ‘‘exdividend’’ on that date (that is, when 

transactions in the stock on an organized securities 

exchange or trading system no longer carry the right 

to receive that dividend or distribution) as 

measured from the close in trading on the previous 

day and (c) the change in the market price of the 

call option. 

13Call options on the Nasdaq-100 are traded on 

the CBOE, and both last sale and quotation 

information for the call options are disseminated in 

real-time through OPRA. Nasdaq states that the 

value of the BXN can be readily approximated as 

a function of observable market prices throughout 

the trading day. In particular, such a calculation 

would require information on the current price of 

the Nasdaq-100 Index and specific nearest-toexpiration call and put options on that Index. These 

components trade in highly liquid markets, and 

real-time prices are available continuously 

throughout the trading day from a number of 

sources including Bloomberg and the CBOE. 

14The Commission previously approved the 

listing and trading of notes linked to similar CBOE 

indexes (BXM and BXD) that are not disseminated 

every 15 seconds. The Commission also recently 

approved an exception to the 15-second 

requirement in the American Stock Exchange 

‘‘generic’’ listing standards for notes linked to these 

indexes. See supra note 7. 

15Prior to such change in the manner in which 

the Index is calculated, or in the event of any Index 

substitution, Nasdaq will file a proposed rule 

change pursuant to Rule 19b–4, which must be 

approved by the Commission prior to continued 

listing and trading in the Notes. 

16See Securities Exchange Act Release No. 32988 

(September 29, 1993); 58 FR 52124 (October 6, 

1993). 

17Morgan Stanley satisfies this listing criterion. 

18NASD Rule 4420(f)(2) requires issuers of 

securities designated pursuant to this paragraph to 

be listed on The Nasdaq National Market or the 

New York Stock Exchange, Inc. (‘‘NYSE’’) or be an 

affiliate of a company listed on The Nasdaq 

National Market or the NYSE; provided, however, 

that the provisions of NASD Rule 4450 will be 

applied to sovereign issuers of ‘‘other’’ securities on 

a case-by-case basis. 

cooperation with Nasdaq, the Index was 

initially announced in 2005.11 The 

CBOE developed the BXN Index in 

response to requests by options portfolio 

managers that the CBOE provide an 

objective benchmark for evaluating the 

performance of buy-write strategies, one 

of the most popular option trading 

strategies. In addition, the BXN Index 

could provide investors with a 

straightforward indicator of the riskreducing character of options. 

The BXN Index is a passive total 

return index based on (1) buying a 

portfolio consisting of the component 

stocks of the Nasdaq-100, and (2) 

‘‘writing’’ (or selling) near-term Nasdaq100 call options with the closest out-ofthe money strike price, generally on the 

third Friday of each month. This 

strategy consists of a hypothetical 

portfolio consisting of a ‘‘long’’ position 

indexed to the Nasdaq-100 on which are 

deemed sold a succession of one-month, 

at-the-money call options on the 

Nasdaq-100 listed on the CBOE. 

Dividends paid on the component 

stocks underlying the Nasdaq-100 and 

the dollar value of option premium 

deemed received from the sold call 

options are functionally ‘‘reinvested’’ in 

the covered Nasdaq-100 portfolio. 

The value of the BXN Index on any 

given date will equal: (1) The value of 

the BXN Index on the previous day, 

multiplied by (2) the daily rate of 

return 12 on the covered Nasdaq-100 

portfolio on that date. Thus, the daily 

change in the BXN Index reflects the 

daily changes in value of the covered 

Nasdaq-100 portfolio, which consists of 

the Nasdaq-100 (including dividends) 

and the component Nasdaq-100 option. 

The daily closing price of the BXN 

Index is calculated and disseminated by 

the CBOE on its Web site at http:// 

www.cboe.com and via the Options 

Pricing and Reporting Authority 

(‘‘OPRA’’) at the end of each trading 

day. The value of the Nasdaq-100 Index 

is disseminated at least once every 

fifteen (15) seconds throughout the 

trading day. Nasdaq believes that the 

intraday dissemination of the Nasdaq100 Index along with the ability of 

investors to obtain real-time, intraday 

Nasdaq-100 call option pricing provides 

sufficient transparency regarding the 

BXN Index.13 In addition, as indicated 

above, the value of the BXN Index is 

calculated once every trading day, 

thereby providing investors with a daily 

value of such ‘‘hypothetical’’ buywrite 

options strategy on the Nasdaq-100. 

As noted above, the Index is not 

calculated or disseminated continuously 

throughout the trading day. Instead, the 

CBOE calculates the value of the Index 

shortly after the close.14 In addition, 

CBOE will disseminate daily an updated 

value of the amount investors would 

receive for the Notes if exchanged or 

redeemed (‘‘Indicative Value’’). The 

Indicative Value equals the performance 

of the Index less fees and other 

adjustment amounts, if any. The 

Indicative Value is calculated by the 

CBOE after the close of trading and after 

the BXN is calculated for use by 

investors during the next trading day. It 

is designed to provide investors with a 

daily reference value of the adjusted 

Index. The Indicative Value may not 

reflect the precise value of the Notes. 

As stated below, in the event the 

calculation and dissemination of the 

Index is discontinued, Nasdaq will 

consult with the Commission and will 

prohibit the continued listing of the 

Notes unless otherwise authorized by 

the Commission.15

Listing and Trading Rules 

Under NASD Rule 4420(f), Nasdaq 

may approve for listing and trading 

innovative securities that cannot be 

readily categorized under traditional 

listing guidelines.16 Nasdaq proposes to 

list and trade Notes based on the BXN 

Index under NASD Rule 4420(f). 

The Notes, which will be registered 

under Section 12 of the Act, will 

initially be subject to Nasdaq’s listing 

criteria for other securities under NASD 

Rule 4420(f). Specifically, under NASD 

Rule 4420(f)(1): 

(A) The issuer shall have assets in 

excess of $100 million and stockholders’

equity of at least $10 million.17 In the 

case of an issuer which is unable to 

satisfy the income criteria set forth in 

Rule 4420(a)(1), Nasdaq generally will 

require the issuer to have the following: 

(i) Assets in excess of $200 million and 

stockholders’ equity of at least $10 

million; or (ii) assets in excess of $100 

million and stockholders’ equity of at 

least $20 million; 

(B) There must be a minimum of 400 

holders of the security; provided, 

however, that if the instrument is traded 

in $1,000 denominations, there must be 

a minimum of 100 holders; 

(C) For equity securities designated 

pursuant to this paragraph, there must 

be a minimum public distribution of 

1,000,000 trading units; 

(D) The aggregate market value/ 

principal amount of the security will be 

at least $4 million. 

In addition, Morgan Stanley satisfies 

the listed marketplace requirement set 

forth in NASD Rule 4420(f)(2).18 Lastly, 

pursuant to NASD Rule 4420(f)(3), prior 

to the commencement of trading of the 

Notes, Nasdaq will distribute a circular 

Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Notices 68489 

19NASD Rule 2310(b) requires members to make 

reasonable efforts to obtain information concerning 

a customer’s financial status, a customer’s tax 

status, the customer’s investment objectives, and 

such other information used or considered to be 

reasonable by such member or registered 

representative in making recommendations to the 

customer. 

20Telephone conference between Jonathan 

Cayne, Associate General Counsel, Nasdaq, and 

Geoffrey Pemble, Special Counsel, Division of 

Market Regulation, Commission, on November 1, 

2005. 

21 15 U.S.C. 78o–3. 

22 15 U.S.C. 78o–3(6). 

to members providing guidance 

regarding compliance responsibilities 

and requirements, including suitability 

recommendations, and highlighting the 

special risks and characteristics of the 

Notes. In particular, Nasdaq will advise 

members recommending a transaction 

in the Notes to: (1) Determine that such 

transaction is suitable for the customer; 

and (2) have a reasonable basis for 

believing that the customer can evaluate 

the special characteristics of, and is able 

to bear the financial risks of, such 

transaction. 

The Notes will be subject to Nasdaq’s 

continued listing criterion for other 

securities pursuant to NASD Rule 

4450(c). Under this criterion, the 

aggregate market value or principal 

amount of publicly held units must be 

at least $1 million. The Notes also must 

have at least two registered and active 

market makers, which is a continued 

listing requirement under NASD Rule 

4310(c)(1). In addition, Nasdaq will 

commence delisting or removal 

proceedings with respect to the Notes 

(unless the Commission has approved 

the continued trading of the Notes) 

under any of the following 

circumstances: 

(i) If the aggregate market value or the 

principal amount of the Notes publicly 

held is less than $400,000; 

(ii) If the value of the Index is no 

longer calculated or widely 

disseminated as described above in this 

filing; or 

(iii) If such other event shall occur or 

condition exist which, in the opinion of 

Nasdaq, makes further dealings on 

Nasdaq inadvisable. 

Nasdaq will also consider prohibiting 

the continued listing of the Notes if 

Morgan Stanley is not able to meet its 

obligations on the Notes. The Notes will 

be subject to the NASD’s existing 

trading halt rules. 

Since the Notes will be deemed equity 

securities for the purpose of NASD Rule 

4420(f), the NASD and Nasdaq’s existing 

equity trading rules will apply to the 

Notes. First, pursuant to NASD Rule 

2310 and IM–2310–2, members must 

have reasonable grounds for believing 

that a recommendation to a customer 

regarding the purchase, sale or exchange 

of any security is suitable for such 

customer upon the basis of the facts, if 

any, disclosed by such customer as to 

his other security holdings and as to his 

financial situation and needs.19 In 

addition, as previously described, 

Nasdaq will distribute a circular to 

members providing guidance regarding 

compliance responsibilities and 

requirements, including suitability 

recommendations, and highlighting the 

special risks and characteristics of the 

Notes. Furthermore, the Notes will be 

subject to the equity margin rules. 

Lastly, the regular equity trading hours 

of 9:30 a.m. to 4 p.m. will apply to 

transactions in the Notes. 

Surveillance 

Nasdaq represents that NASD’s 

surveillance procedures are adequate to 

properly monitor the trading of the 

Notes. Specifically, NASD will rely on 

its current surveillance procedures 

governing equity securities and will 

include additional monitoring on key 

pricing dates, such as redemption, call, 

and maturity dates.20

Pursuant to Rule 10A–3 of the Act 

and Section 3 of the Sarbanes-Oxley Act 

of 2002, Pub. L. No. 107–204, 116 Stat. 

745 (2002), Nasdaq will prohibit the 

initial or continued listing of any 

security of an issuer that is not in 

compliance with the requirements set 

forth therein. 

Morgan Stanley will deliver a 

prospectus in connection with every 

purchase of the Notes. The procedure 

for the delivery of a prospectus will be 

the same as Morgan Stanley’s current 

procedure involving primary offerings. 

2. Statutory Basis 

Nasdaq believes that the proposed 

rule change is consistent with the 

provisions of Section 15A of the Act,21

in general, and with Section 15A(b)(6) 

of the Act,22 in particular, in that the 

proposal is 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 of a free and open market 

and, in general, to protect investors and 

the public interest. 

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, 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–2005–118 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

Station Place, 100 F Street, NE., 

Washington, DC 20549–9303. 

All submissions should refer to File 

Number SR–NASD–2005–118. 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 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–2005–118 and 

should be submitted on or before 

December 1, 2005. 

68490 Federal Register / Vol. 70, No. 217 / Thursday, November 10, 2005 / Notices 

23See supra note 10. 

24 15 U.S.C. 78o–3. 

25 In approving the proposed rule, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

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

26The issuer, Morgan Stanley, disclosed in the 

prospectus that the original issue price of the Notes 

includes commissions (and the secondary market 

prices are likely to exclude commissions) and 

Morgan Stanley’s costs of hedging its obligations 

under the Notes. These costs could increase the 

initial value of the Notes, thus affecting the 

payment investors receive at maturity. 

Additionally, the issuer discloses in the prospectus 

that the hedging activities of its affiliates, including 

selling call options on the Nasdaq-100, could affect 

the value of these call option during the half hour 

period in which their value is determined for 

purposes of inclusion in the BXN Index. Such 

hedging activity must, of course, be conducted in 

accordance with applicable regulatory 

requirements. 

27See Securities Exchange Act Release Nos. 

44913 (October 9, 2001), 66 FR 52469 (October 15, 

2001) (order approving the listing and trading of 

notes whose return is based on the performance of 

the Nasdaq-100 Index) (SR–NASD–2001–73); 44483 

(June 27, 2001), 66 FR 35677 (July 6, 2001) (order 

approving the listing and trading of notes whose 

return is based on a portfolio of 20 securities 

selected from the Amex Institutional Index) (File 

No. SR–Amex–2001–40); and 3774 (September 27, 

1996), 61 FR 52480 (October 7, 1996) (order 

approving the listing and trading of notes whose 

return is based on a weighted portfolio of 

healthcare/biotechnology industry securities) (SR–

Amex–96–27). 

28See supra not 10. 

29 15 U.S.C. 78f(b)(5) and 78s(b)(2). 

30 15 U.S.C. 78o3(b)(6) and 78s(b)(2). 

31 15 U.S.C. 78s(b)(2). 

32 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

IV. Commission’s Findings and Order 

Granting Accelerated Approval of the 

Proposed Rule Change 

Nasdaq requests that the Commission 

approve this filing on an accelerated 

basis since it raises no new or novel 

issues and will enable Nasdaq to 

accommodate the timetable of listing the 

Notes. In this regard, Nasdaq notes that 

the Commission has previously 

approved the listing of securities the 

performance of which has been linked 

to the Index.23

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 association, and, in particular, 

the requirements of Section 15A of the 

Act.24 Specifically, the Commission 

finds that the proposal is consistent 

with Section 15A(b)(6) of the Act, which 

requires that the rules be designed to 

promote just and equitable principles of 

trade, foster cooperation and 

coordination with persons engaged in 

processing information with respect to 

and facilitating transactions in 

securities, as well as to remove 

impediments to and perfect the 

mechanism of a free and open market, 

and, in general, to protect investors and 

the public interest.25

In approving the product, the 

Commission recognizes that the Index is 

a passive total return index based on (1) 

buying a portfolio consisting of the 

component stocks of the Nasdaq-100, 

and (2) ‘‘writing’’ (or selling) near-term 

Nasdaq-100 call options, with the 

closest out-of-the money strike price, 

generally on the third Friday of each 

month. Given the large trading volume 

and capitalization of the compositions 

of the stocks underlying the Index, the 

Commission believes that the listing and 

trading of the Notes that are linked to 

the BXN Index should not unduly 

impact the market for the underlying 

securities compromising the Nasdaq-100 

or raise manipulative concerns.26

Moreover, the issuers of the underlying 

securities comprising the Nasdaq-100 

are subject to reporting requirements 

under the Act, and all of the component 

stocks are either listed or traded on, or 

traded through the facilities of, U.S. 

securities markets. 

The Commission also believes that 

any concerns that a broker-dealer, such 

as Morgan Stanley, or a subsidiary 

providing a hedge for the issuer, will 

incur undue position exposure are 

minimized by the size of the Notes 

issuance in relation to the net worth of 

Morgan Stanley.27

Finally, the Commission notes that 

the value of the Index will be calculated 

and disseminated by CBOE once every 

trading day after the close of trading. 

However, the Commission notes that the 

value of the Nasdaq-100 will be widely 

disseminated at least once every fifteen 

seconds throughout the trading day and 

that investors are able to obtain realtime call option pricing on the Nasdaq100 Index during the trading day. 

Further, the Indicative Value, which 

will be calculated by the CBOE after the 

close of trading and after the CBOE 

calculates the BXN Index for use by 

investors the next trading day, is 

designed to provide investors with a 

daily reference value of the adjusted 

Index. 

Further, the Commission notes that 

the Nasdaq has agreed to undertake to 

delist the Notes in the event that CBOE 

ceases to calculate and disseminate the 

Index, and Morgan Stanley is unable to 

arrange to have the BXN Index 

calculated and widely disseminated 

through a third party. 

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 thereof 

in the Federal Register. Nasdaq has 

requested accelerated approval because 

this product is similar to several other 

instruments currently listed and traded 

on the Nasdaq.28 Additionally, the 

Notes will be listed pursuant to 

Nasdaq’s existing hybrid security listing 

standards as described above. Therefore, 

the Commission finds good cause, 

consistent with Section 19(b)(2) of the 

Act,29 to approve the proposal on an 

accelerated basis. 

Accordingly, the Commission believes 

there is good cause, consistent with 

Sections 15A(b)(6) and 19(b)(2) of the 

Act,30 to approve the proposal, on an 

accelerated basis. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,31 that the 

proposed rule change (SR–NASD–2005–

118) is hereby approved on an 

accelerated basis. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.32

Jonathan G. Katz, 

Secretary. 

[FR Doc. 05–22414 Filed 11–9–05; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52715; File No. SR–NYSE–

2005–65] 

Self-Regulatory Organizations; New 

York Stock Exchange, Inc.; Notice of 

Filing of Proposed Rule Change 

Regarding the Euro Currency Trust 

November 1, 2005. 

Pursuant to section 19(b)(1) 1 of the 

Securities Exchange Act of 1934 (the 

‘‘Exchange Act’’) 2 and Rule 19b–4 

thereunder,3 notice is hereby given that 

on September 29, 2005, the New York 

Stock Exchange, Inc. (‘‘NYSE’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, III 

below, which Items have been prepared 

by the Exchange. 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 

The Exchange proposes to list and 

trade under new NYSE Rules 1300A et 

seq. (‘‘Currency Trust Shares’’) Euro