Document ID: SEC-2007-0327-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NASDAQ Stock Market LLC
Posted Date: 2007-03-05T05:00Z

[Federal Register: March 5, 2007 (Volume 72, Number 42)]
[Notices]               
[Page 9802-9805]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05mr07-88]                         

[[Page 9802]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55353; File No. SR-NASDAQ-2007-011]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change To Permit Trading Pursuant to Unlisted Trading Privileges 
of Shares of 93 Funds of the Proshares Trust

February 26, 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 February 21, 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 is proposing to trade shares of the 93 funds identified 
below (collectively, the ``Funds'') of the ProShares Trust (``Trust'') 
pursuant to unlisted trading privileges (``UTP'').
    The text of the proposed rule change is available from Nasdaq's Web 
site at 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
    The Exchange proposes to trade, pursuant to UTP, the Shares of 93 
Funds, which are exchange-traded funds (``ETFs''). The Commission has 
approved exchange rules for the original listing and trading of the 
Shares on the American Stock Exchange (``Amex''). Nasdaq is submitting 
this filing because its current generic listing standards for ETFs do 
not extend to ETFs with the investment objective of corresponding to a 
specified multiple of the performance, or the inverse performance, of 
an index that underlies each Fund (each such index is referred to below 
as an ``Underlying Index''), rather than merely mirroring the 
performance of the index. Systems operated by Nasdaq and its affiliates 
currently trade on an over-the-counter basis (as facilities of the 
NASD) those Shares that have already commenced trading on Amex; some of 
the Shares were approved for listing and trading only recently, and 
actual trading has not yet commenced. This filing will allow Nasdaq to 
trade the Shares as an exchange.
Ultra Funds
    Certain Funds seek daily investment results, before fees and 
expenses, that correspond to twice (200%) the daily performance of the 
Underlying Indexes (``Ultra Funds''). If such Funds meet their 
objective, the net asset value (the ``NAV'') \3\ of the Shares of each 
Fund should increase (on a percentage basis) approximately twice as 
much as the Fund's Underlying Index when the prices of the securities 
in such Index increase on a given day, and should lose approximately 
twice as much when such prices decline on a given day. This filing 
applies to the following Ultra Funds:
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    \3\ NAV per Share of each Fund is computed by dividing the value 
of the net assets of such Fund (i.e., the value of its total assets 
less total liabilities) by its total number of Shares outstanding. 
Expenses and fees are accrued daily and taken into account for 
purposes of determining NAV.
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    4 Ultra Funds listed and traded on Amex pursuant to Commission 
order on May 10, 2006 \4\: (1) Ultra S&P 500, (2) Ultra Nasdaq-100, (3) 
Ultra Dow 30, and (4) Ultra S&P Mid-Cap 400; and
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    \4\ Securities Exchange Act Release No. 53784 (May 10, 2006), 71 
FR 28721 (May 17, 2006). These Funds were subsequently approved for 
UTP trading on NYSE Arca. See Securities Exchange Act Release No. 
54026 (June 21, 2006), 71 FR 36850 (June 28, 2006).
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    27 Ultra Funds listed and traded on Amex pursuant to Commission 
order on January 17, 2007 \5\: (1) Ultra Russell 2000, (2) Ultra S&P 
SmallCap 600, (3) Ultra S&P500/Citigroup Value, (4) Ultra S&P500/
Citigroup Growth, (5) Ultra S&P MidCap 400/Citigroup Value, (6) Ultra 
S&P MidCap 400/Citigroup Growth, (7) Ultra S&P SmallCap 600/Citigroup 
Value, (8) Ultra S&P SmallCap 600/Citigroup Growth, (9) Ultra Basic 
Materials, (10) Ultra Consumer Goods, (11) Ultra Consumer Services, 
(12) Ultra Financials, (13) Ultra Health Care, (14) Ultra Industrials, 
(15) Ultra Oil & Gas, (16) Ultra Real Estate, (17) Ultra 
Semiconductors, (18) Ultra Technology, (19) Ultra Utilities, (20) Ultra 
Russell Midcap Index, (21) Ultra Russell Midcap Growth Index, (22) 
Ultra Russell Midcap Value Index, (23) Ultra Russell 1000 Index, (24) 
Ultra Russell 1000 Growth Index, (25) Ultra Russell 1000 Value Index, 
(26) Ultra Russell 2000 Growth Index, and (27) Ultra Russell 2000 Value 
Index.
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    \5\ Securities Exchange Act Release No. 55117 (January 17, 
2007), 72 FR 3442 (January 25, 2007). These Funds were subsequently 
approved for UTP trading on NYSE Arca. See Securities Exchange Act 
Release No. 55125 (January 18, 2007), 72 FR 3462 (January 25, 2007).
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Short Funds
    Nasdaq also proposes to trade Shares of certain Funds that seek 
daily investment results, before fees and expenses, that correspond to 
the inverse or opposite of the daily performance (-100%) of the 
Underlying Indexes (``Short Funds''). If such a Fund is successful in 
meeting its objective, the NAV of the corresponding Shares should 
increase approximately as much (on a percentage basis) as the 
respective Underlying Index loses when the prices of the securities in 
the Index decline on a given day, or should decrease approximately as 
much as the respective Index gains when prices in the Index rise on a 
given day. This filing applies to the following Short Funds:
    4 Short Funds listed and traded on Amex pursuant to Commission 
order on May 10, 2006 \6\: (1) Short S&P 500, (2) Short Nasdaq-100, (3) 
Short Dow 30, and (4) Short S&P Mid-Cap 400; and
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    \6\ See supra note 4.
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    27 Short Funds listed and traded on Amex pursuant to Commission 
order on January 17, 2007 \7\: (1) Short Russell 2000, (2) Short S&P 
SmallCap 600, (3) Short S&P500/Citigroup Value, (4) Short S&P500/
Citigroup Growth, (5) Short S&P MidCap 400/Citigroup Value, (6) Short 
S&P MidCap 400/Citigroup Growth, (7) Short S&P SmallCap 600/Citigroup 
Value, (8) Short S&P

[[Page 9803]]

SmallCap 600/Citigroup Growth, (9) Short Basic Materials, (10) Short 
Consumer Goods, (11) Short Consumer Services, (12) Short Financials, 
(13) Short Health Care, (14) Short Industrials, (15) Short Oil & Gas, 
(16) Short Real Estate, (17) Short Semiconductors, (18) Short 
Technology, (19) Short Utilities, (20) Short Russell Midcap Index, (21) 
Short Russell Midcap Growth Index, (22) Short Russell Midcap Value 
Index, (23) Short Russell 1000 Index, (24) Short Russell 1000 Growth 
Index, (25) Short Russell 1000 Value Index, (26) Short Russell 2000 
Growth Index, and (27) Short Russell 2000 Value Index.
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    \7\ See supra note 5.
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UltraShort Funds

    Nasdaq also proposes to trade Shares of certain Funds that seek 
daily investment results, before fees and expenses, that correspond to 
twice the inverse (-200%) of the daily performance of the Underlying 
Indexes (``UltraShort Funds''). If such a Fund is successful in meeting 
its objective, the NAV of the corresponding Shares should increase 
approximately twice as much (on a percentage basis) as the respective 
Underlying Index loses when the prices of the securities in the Index 
decline on a given day, or should decrease approximately twice as much 
as the respective Underlying Index gains when such prices rise on a 
given day. This filing applies to the following UltraShort Funds:
    4 UltraShort Funds listed and traded on Amex pursuant to Commission 
order on June 23, 2006 \8\: (1) UltraShort S&P 500, (2) UltraShort 
Nasdaq-100, (3) UltraShort Dow 30, and (4) UltraShort S&P Mid-Cap 400; 
and
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    \8\ Securities Exchange Act Release No. 54040 (June 23, 2006), 
71 FR 37629 (June 30, 2006). These Funds were subsequently approved 
for UTP trading on NYSE Arca. See Securities Exchange Act Release 
No. 54045 (June 26, 2006), 71 FR 37971 (July 3, 2006).
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    27 UltraShort funds listed and traded on Amex pursuant to 
Commission order on January 17, 2007 \9\: (1) UltraShort Russell 2000, 
(2) UltraShort S&P SmallCap 600, (3) UltraShort S&P500/Citigroup Value, 
(4) UltraShort S&P500/Citigroup Growth, (5) UltraShort S&P MidCap 400/
Citigroup Value, (6) UltraShort S&P MidCap 400/Citigroup Growth, (7) 
UltraShort S&P SmallCap 600/Citigroup Value, (8) UltraShort S&P 
SmallCap 600/Citigroup Growth, (9) UltraShort Basic Materials, (10) 
UltraShort Consumer Goods, (11) UltraShort Consumer Services, (12) 
UltraShort Financials, (13) UltraShort Health Care, (14) UltraShort 
Industrials, (15) UltraShort Oil & Gas, (16) UltraShort Real Estate, 
(17) UltraShort Semiconductors, (18) UltraShort Technology, (19) 
UltraShort Utilities, (20) UltraShort Russell Midcap Index, (21) 
UltraShort Russell Midcap Growth Index, (22) UltraShort Russell Midcap 
Value Index, (23) UltraShort Russell 1000 Index, (24) UltraShort 
Russell 1000 Growth Index, (25) UltraShort Russell 1000 Value Index, 
(26) UltraShort Russell 2000 Growth Index, and (27) UltraShort Russell 
2000 Value Index.
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    \9\ See supra note 5.
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    Access to the current portfolio composition of each Fund is 
currently available through the Trust's Web site (http://www.proshares.com
).\10\ The Underlying Indexes are identified in Amex's 

proposed rule changes to list the Funds (the ``Original Filings'').\11\ 
The Original Filings state that Amex would disseminate for each Fund on 
a daily basis by means of Consolidated Tape Association (``CTA'') and 
CQ High Speed Lines information with respect to an Indicative Intra-Day 
Value (``IIV''), the daily trading volume, closing price, NAV, and 
final dividend amounts, if any, to be paid for each Fund.\12\
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    \10\ The Trust's Web site is publicly accessible at no charge 
and contains the following information for each Fund's Shares: (1) 
The prior business day's closing NAV, the reported closing price, 
and a calculation of the premium or discount of such price in 
relation to the closing NAV; (2) data for a period covering at least 
the current and three immediately preceding calendar quarters (or 
the life of a Fund, if shorter) indicating how frequently each 
Fund's Shares traded at a premium or discount to NAV based on the 
daily closing price and the closing NAV, and the magnitude of such 
premiums and discounts; (3) its prospectus and product description; 
and (4) other quantitative information such as daily trading volume. 
The prospectus and/or product description for each Fund would inform 
investors that the Trust's Web site has information about the 
premiums and discounts at which the Fund's Shares have traded.
    \11\ See supra notes 4, 5 and 8.
    \12\ The Original Filings explain that, if the IIV is not 
disseminated as required, Amex would halt trading in the shares of 
the Funds. If Amex halts trading for this reason, then Nasdaq would 
do so as well.
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    The Original Filings state that the daily closing index value and 
the percentage change in the daily closing index value for each 
Underlying Index would be publicly available on various Web sites such 
as http://www.bloomberg.com. The Original Filings further state that 

data regarding each Underlying Index are also available from the 
respective index provider to subscribers. According to the Original 
Filings, several independent data vendors package and disseminate index 
data in various value-added formats (including vendors displaying both 
securities and index levels and vendors displaying index levels only).
    The Original Filings state that the value of each Underlying Index 
is updated intra-day on a real-time basis as its individual component 
securities change in price, and the intra-day values of each Underlying 
Index are disseminated at least every 15 seconds throughout Amex's 
trading day by Amex or another organization authorized by the relevant 
Underlying Index provider.
    To provide updated information relating to each Fund for use by 
investors, professionals, and persons wishing to create or redeem 
Shares, Amex disseminates through the facilities of the CTA: (1) 
Continuously throughout Amex's trading day, the market value of a 
Share; and (2) at least every 15 seconds throughout Amex's trading day, 
the IIV as calculated by Amex.
    Shares would trade on Nasdaq from 9:30 a.m. ET until 8 p.m. ET, 
even if the IIV is not disseminated from 4:15 p.m. ET to 8 p.m. ET.\13\ 
Nasdaq has appropriate rules to facilitate transactions in the Shares 
during these trading sessions.
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    \13\ Because NSCC does not disseminate the new basket amount to 
market participants until approximately 6 p.m. to 7 p.m. ET, an 
updated IIV is not possible to calculate from 4:15 p.m. to 8 p.m. 
ET. It is also Nasdaq's understanding that the official index 
sponsors for the Underlying Indexes currently do not calculate 
updated index values during those times. However, if the index 
sponsors calculated an Underlying Index for a Fund during those 
times in the future, Nasdaq would not trade that Fund during those 
times unless the official index value were widely disseminated.
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    Nasdaq will halt trading in the Shares of a Fund 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 Shares will also be governed by provisions of Nasdaq Rule 4120 
relating to temporary interruptions in the calculation or wide 
dissemination of the IOPV or the value of the Underlying Index.\14\ 
Additionally, Nasdaq may cease trading the Shares if other unusual 
conditions or circumstances exist which, in the opinion of Nasdaq, 
makes 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 the Shares of a Fund if the listing market 
delists them.
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    \14\ See Securities Exchange Act Release No. 55269 (February 9, 
2007), 72 FR 7490 (February 15, 2007) (SR-NASDAQ-2006-050).
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    In connection with the trading of the Shares, Nasdaq will inform 
Nasdaq members in an Information Circular of the special 
characteristics and risks associated with trading the Shares, as

[[Page 9804]]

well as the requirements of Nasdaq Rule 2310, which requires Nasdaq 
members to determine that a particular security is suitable for a 
customer before recommending a transaction in it. Nasdaq also would 
require its members to deliver a prospectus or product description to 
investors purchasing the Shares prior to or concurrently with a 
transaction in the Shares.
    Nasdaq deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to Nasdaq's existing rules applicable to 
UTP trading of equity securities. Nasdaq believes that its surveillance 
procedures are adequate to address any concerns about the trading of 
the Shares on Nasdaq. Trading of the Shares through NASD facilities 
operated by Nasdaq is currently subject to NASD's surveillance 
procedures for equity securities in general and ETFs in particular. 
After Nasdaq begins to trade the Shares as an exchange, NASD, on behalf 
of Nasdaq, will continue to monitor such trading. Nasdaq's transition 
to exchange status will not result in any change in the surveillance 
process with respect to the Shares.\15\
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    \15\ Surveillance of all trading on NASD facilities operated by 
Nasdaq, including the trading of Shares, is currently being 
conducted by NASD. After Nasdaq begins to trade the Shares 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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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \16\ in general and furthers the 
objectives of Section 6(b)(5) \17\ in particular in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, remove impediments to a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest. In addition, the Exchange 
believes that the proposal is consistent with Rule 12f-5 under the Act 
\18\ because it deems the Shares to be equity securities, thus 
rendering trading in the Shares 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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
proposal will promote competition with respect to trading of the Shares 
by ensuring that Nasdaq can continue to trade the Shares after it 
begins to operate as an exchange for non-Nasdaq securities.

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 rule-comments@sec.gov. Please include 

File Number SR-NASDAQ-2007-011 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-2007-011. 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-2007-011 and should be submitted on or before 
March 26, 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 
Shares.
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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 the Shares on Amex and the trading of the Shares 
on NYSE Arca pursuant to UTP.\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 Shares to be equity securities, thus rendering trading in the 
Shares subject to the Exchange's existing rules

[[Page 9805]]

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 notes 4-9.
    \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 
Shares are disseminated through the facilities of the CTA and the 
Consolidated Quotation System. Furthermore, the IIV, updated to reflect 
changes in currency exchange rates, is calculated by Amex and published 
via the facilities of the Consolidated Tape Association on a 15-second 
delayed basis throughout the Exchange's Core Trading Session. In 
addition, if the listing market halts trading when the IIV is not being 
calculated or disseminated, the Exchange would halt trading in the 
Shares.
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    \25\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    The Commission notes that, if the Shares should be delisted by the 
listing exchange, the Exchange would no longer have authority to trade 
the Shares 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 Shares in all trading sessions and to 
deter and detect violations of Exchange rules.
    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 Shares.
    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 Shares prior 
to or concurrently with the confirmation of a transaction.

    This approval order is conditioned on the Exchange's adherence to 
these representations.

    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 the Shares on Amex and the trading of 
the Shares on NYSE Area pursuant to UTP are 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 Shares on the Exchange pursuant to UTP. Therefore, accelerating 
approval of this proposal should benefit investors by creating, without 
undue delay, additional competition in the market for the Shares.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\26\ that the proposed rule change (SR-NASDAQ-2007-011), be and it 
hereby is, approved on an accelerated basis.
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    \26\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\27\
Florence E. Harmon,
Deputy Secretary.
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    \27\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E7-3749 Filed 3-2-07; 8:45 am]

BILLING CODE 8010-01-P