Document ID: SEC-2007-0727-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NASDAQ Stock Market LLC
Posted Date: 2007-05-22T04:00Z

[Federal Register: May 22, 2007 (Volume 72, Number 98)]
[Notices]               
[Page 28733-28736]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22my07-118]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55767; File No. SR-NASDAQ-2007-051]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change to Trade Shares of the PowerShares DB Commodity Index 
Tracking Fund Pursuant to Unlisted Trading Privileges

May 15, 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 May 10, 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 notice and 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 trade, pursuant to unlisted trading privileged 
(``UTP''), shares (``Shares'') of the PowerShares DB Commodity Index 
Tracking Fund (the ``Fund'').
    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.

[[Page 28734]]

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 Shares on a UTP basis. The Shares 
are currently trading on Nasdaq on a three-month pilot basis.\3\ 
Approval of this filing will allow the Shares to continue to trade 
after the expiration of the pilot. The Commission previously approved 
the listing and trading of the Shares on the American Stock Exchange 
(``Amex'').\4\
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    \3\ Securities Exchange Act Release No. 55386 (March 2, 2007), 
72 FR 10801 (March 9, 2007) (SR-NASDAQ-2007-016).
    \4\ See Securities Exchange Act Release No. 53105 (January 11, 
2006), 71 FR 3129 (January 19, 2006) (SR-Amex-2005-059) (the ``Amex 
Order'').
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    The Shares of the Fund represent beneficial ownership interests in 
the Fund's net assets, consisting solely of the common units of 
beneficial interests of the DB Commodity Index Tracking Master Fund 
(``Master Fund''). Each Share of the Fund correlates with a Master Fund 
share issued by the Master Fund and held by the Fund. The investment 
objective of each of the Fund and the Master Fund is to reflect the 
performance of the Deutsche Bank Liquid Commodity IndexTM (``DBLCI'' or 
``Index''), less the expenses of the operations of the Fund and the 
Master Fund. The Fund pursues its investment objective by investing 
substantially all of its assets in the Master Fund. The Fund holds no 
investment assets other than Master Fund shares. The Master Fund 
pursues its investment objective by investing primarily in a portfolio 
of futures contracts in the commodities comprising the Index, which are 
crude oil, heating oil, aluminum, gold, corn, and wheat (``Index 
commodities''). The Master Fund also holds cash and U.S. Treasury 
securities for deposit with futures commission merchants for margin 
purposes, and other high-credit-quality short-term fixed income 
securities.
    A description of the DBLCI, commodity futures contracts and related 
options, operation of the Fund, and the Shares is set forth in the Amex 
Order. To summarize, an issuance of Shares is made only in a basket of 
200,000 Shares (``Basket Aggregation'' or ``Basket'') or multiples 
thereof. The Fund issues and redeems the Shares on a continuous basis, 
by or through participants that have entered into participant 
agreements (each, an ``Authorized Participant'') \5\ with the Fund and 
its Managing Owner,\6\ at the net asset value (``NAV'') per Share 
determined shortly after 4 p.m. Eastern Time (``ET'') or the closing of 
the last to close of the futures exchanges on which the Index 
commodities are traded, whichever is later, on the business day on 
which an order to purchase the Shares in one or more Baskets is 
received in proper form.
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    \5\ An ``Authorized Participant'' is a person, who at the time 
of submitting to the trustee an order to create or redeem one or 
more Baskets: (i) Is a registered broker-dealer; (ii) is a 
Depository Trust Company participant or indirect participant; and 
(iii) has in effect a valid Participant Agreement with the Fund 
issuer.
    \6\ The Managing Owner is DB Commodity Services LLC, a Delaware 
limited liability company that is registered with the Commodity 
Futures Trading Commission as a commodity pool operator and 
commodity trading advisor. The Managing Owner is an affiliate of 
Deutsche Bank AG, the sponsor of the Fund and Master Fund. The 
Managing Owner serves as the commodity pool operator and commodity 
trading advisor of the Fund and the Master Fund and manages and 
controls all aspects of the business of the Funds.
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    Shortly after 4 p.m. ET each business day, The Bank of New York 
(``Administrator'') determines the NAV for the Fund and Master Fund, 
utilizing the current day's settlement value of the particular 
commodity futures contracts in the Master Fund's portfolio and the 
value of the Master Fund's cash and high-credit-quality, short-term 
fixed income securities. However, if a futures contract on a trading 
day cannot be liquidated due to the operation of daily limits or other 
rules of an exchange upon which such futures contract is traded, the 
settlement price on the most recent trading day on which the futures 
contract could have been liquidated would be used in determining the 
Fund's and the Master Fund's NAV. Accordingly, for both U.S. and non-
U.S. futures contracts, the Administrator typically uses that day's 
futures settlement price for determining the NAV. The calculation 
methodology for the NAV is described in more detail in the Amex Order.
    A Basket is issued in exchange for an amount of cash equal to the 
NAV per Share times 200,000 Shares (``Basket Amount'') on the purchase 
order date. The Basket Amount and NAV are usually determined on each 
business day by the Administrator shortly after 4 p.m. ET. Baskets are 
issued as of 12 noon ET, on the business day immediately following the 
purchase order date (T+1) at the NAV per Share on the purchase order 
date if the required payment has been timely received. An Authorized 
Participant that wishes to purchase a Basket must transfer the Basket 
Amount to the Fund in exchange for a Basket. A Basket is then separable 
upon issuance into the Shares that will be traded on Nasdaq on a UTP 
basis.
    The Shares are not individually redeemable but are redeemable only 
in Baskets. To redeem Shares, an Authorized Participant is required to 
accumulate enough Shares to constitute a Basket (i.e., 200,000 Shares). 
An Authorized Participant that wishes to redeem a Basket would receive 
the Basket Amount in exchange for each Basket surrendered. The 
operation of the Fund and creation and redemption process is described 
in more detail in the Amex Order.
    The value of the Index is calculated and published by its sponsor, 
Deutsche Bank AG London (``DB London''), at least every 15 seconds from 
9:30 a.m. to 4:15 p.m. ET through Bloomberg, Reuters, and other market 
data vendors. In addition, the Index value is available on DB London's 
Web site at https://index.db.com and on the Fund's Web site at http://www.dbcfund.db.com
 on a 20-minute delayed basis.\7\ The closing Index 

level is similarly provided by DB London and the Fund. In addition, any 
adjustments or changes to the Index are also provided by DB London and 
the Fund on their respective Web sites.\8\
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    \7\ Nasdaq provides a hyperlink from its Web site at http://www.nasdaq.com to the Fund's Web site at http://www.dbcfund.db.com 

and the DB London Web site at https://index.db.com. The Fund also 

maintains a Web site at http://www.powershares.com, to which Nasdaq 

also provides a link from its Web site.
    \8\ According to the Amex Order, DB London, the sponsor of the 
Index, has in place procedures to prevent the improper sharing of 
information between different affiliates and departments. 
Specifically, an information barrier exists between the personnel 
within DB London that calculate and reconstitute the Index and other 
personnel of DB London, including but not limited to the Managing 
Owner, sales and trading, external or internal fund managers, and 
bank personnel who are involved in hedging the bank's exposure to 
instruments linked to the Index, in order to prevent the improper 
sharing of information relating to the recomposition of the Index. 
The Index is not calculated by a broker-dealer.
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    The closing prices and daily settlement prices for the futures 
contracts held by the Master Fund are

[[Page 28735]]

publicly available on the Web sites of the futures exchanges trading 
the particular contracts. The particular futures exchange for each 
futures contract with Web site information is as follows: (i) 
Aluminum--London Metal Exchange (``LME'') at http://www.lme.com; (ii) 

corn and wheat--Board of Trade of the City of Chicago, Inc. (``CBOT'') 
at http://www.cbot.com; and (iii) crude oil, heating oil, and gold--New York Mercantile Exchange (``NYMEX'') at http://www.nymex.com. DB 

London's Web site at https://index.db.com also contains futures 

contract pricing information.
    The Web site for the Fund at http://www.powershares.com contains 

the following information: (a) The prior business day's NAV and the 
reported closing price; (b) the mid-point of the bid-ask price in 
relation to the NAV as of the time the NAV is calculated (``Bid-Ask 
Price''); (c) calculation of the premium or discount of such price 
against such NAV; (d) data in chart form displaying the frequency 
distribution of discounts and premiums of the Bid-Ask Price against the 
NAV, within appropriate ranges for each of the four previous calendar 
quarters; (e) the prospectus; and (f) other applicable quantitative 
information. Quotations for and last-sale information regarding the 
Shares are disseminated via the CTA/CQS.
    As described above, the NAV for the Fund is calculated and 
disseminated daily. Amex also disseminates, from 9:30 a.m. to 4:15 p.m. 
ET, for the Fund on a daily basis by means of CTA/CQ High Speed Lines 
information with respect to the Indicative Fund Value (``IFV''), recent 
NAV, and Shares outstanding. Amex also makes available on its Web site 
daily trading volume, closing prices, and the NAV.
    In addition to calculating the NAV of the Fund on a daily basis, 
the Administrator causes to be made available on a daily basis the 
amount of cash to be deposited in connection with the issuance of the 
Shares in Basket Aggregations. Other investors can request such 
information directly from the Administrator.
    Nasdaq 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, including Nasdaq Rule 4630. The trading 
hours for the Shares on Nasdaq will be 9:30 a.m. to 4:15 p.m. ET.
    Nasdaq would halt trading in the Shares 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 IFV or the value of the Index. Additionally, Nasdaq may cease 
trading the Shares 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 would stop trading the 
Shares if the listing market delists them.
    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 Nasdaq facilities is currently subject to NASD's 
surveillance procedures for equity securities in general and ETFs in 
particular.\9\ Nasdaq is able to obtain information regarding trading 
in the Shares and the underlying futures contracts 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 CBOT, 
and Nasdaq has information-sharing agreements in place with NYMEX and 
LME. Nasdaq has issued an Information Circular to inform its members of 
the special characteristics and risks associated with trading the 
Shares.
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    \9\ NASD surveils 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 proposal is consistent with Section 
6(b) of the Act \10\ in general and Section 6(b)(5) of the Act \11\ 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 \12\ because it deems the 
Shares to be an equity securities, thus rendering trading in the Shares 
subject to Nasdaq's existing rules governing the trading of equity 
securities.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 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 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

     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-2007-051 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-2007-051. 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

[[Page 28736]]

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-2007-051 and should 
be submitted on or before June 12, 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.\13\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\14\ 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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    \13\ 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).
    \14\ 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,\15\ which permits an exchange to trade, 
pursuant to UTP, a security that is listed and registered on another 
exchange.\16\ 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.\17\ The Commission also finds that the 
proposal is consistent with Rule 12f-5 under the Act,\18\ 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 governing the trading 
of equity securities.
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    \15\ 15 U.S.C. 78l(f).
    \16\ 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.
    \17\ See supra note 4 (approving listing and trading of Shares 
on Amex). See also Securities Exchange Act Release No. 53736 (April 
27, 2006) 71 FR 26582 (May 5, 2006) (approving UTP trading of Shares 
on Pacific Exchange, Inc. n/k/a NYSE Arca).
    \18\ 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,\19\ 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 IFV, 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 trading hours for the Shares. In addition, 
if the listing market halts trading when the IFV is not being 
calculated or disseminated, the Exchange would halt trading in the 
Shares.
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    \19\ 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 represented that its 
surveillance procedures are adequate to properly monitor Exchange 
trading of the Shares. This approval order is conditioned on the 
Exchange's adherence to this representation.
    In addition, the Commission recently approved the trading of the 
Shares on the Exchange pursuant to UTP for a pilot period of three 
months.\20\ In the Pilot Order, the Commission noted that exchanges 
that trade commodity-related securities generally have in place 
surveillance arrangements with markets that trade the underlying 
securities. In its proposal to trade the Shares for a pilot period, the 
Exchange represented that it was in the process of completing these 
surveillance arrangements and expected to do so ``in the near future.'' 
The Exchange recently provided the Commission with evidence that it has 
completed these surveillance arrangements.
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    \20\ See supra note 3.
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    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 Arca 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 
continued trading of the Shares on the Exchange pursuant to UTP. 
Therefore, accelerating approval of this proposal should benefit 
investors by continuing the additional competition in the market for 
the Shares.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-NASDAQ-2007-049), be and it 
hereby is, approved on an accelerated basis.
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    \21\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E7-9738 Filed 5-21-07; 8:45 am]

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