Document ID: SEC-2007-0706-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NASDAQ Stock Market LLC
Posted Date: 2007-05-17T04:00Z

[Federal Register: May 17, 2007 (Volume 72, Number 95)]
[Notices]               
[Page 27885-27888]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17my07-130]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55739; File No. SR-NASDAQ-2007-049]

 
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 G10 Currency Harvest 
Fund Pursuant to Unlisted Trading Privileges

May 10, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 27886]]

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 7, 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 G10 Currency 
Harvest Fund (the ``Trust'' or ``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.

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\ 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. Eastern Time (``ET'').
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    \3\ See Securities Exchange Act Release No. 55386 (March 2, 
2007), 72 FR 10801 (March 9, 2007) (SR-NASDAQ-2007-016) (the ``Pilot 
Order'').
    \4\ See Securities Exchange Act Release No. 54450 (September 14, 
2006), 71 FR 55230 (September 21, 2006) (the ``Amex Order'').
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    The Shares represent beneficial ownership interests in the Fund's 
net assets, consisting solely of the common units of beneficial 
interests of the DB G10 Currency Harvest Master Fund (the ``Master 
Fund''). The Master Fund is a statutory trust created under Delaware 
law whose investment portfolio consists primarily of futures contracts 
on the currencies comprising the Deutsche Bank G10 Currency Future 
Harvest IndexTM (the ``DBCHI'' or ``Index'') and includes 
cash and U.S. Treasury securities for margin purposes, and other high-
credit-quality short-term fixed income securities. Both the Fund and 
the Master Fund are commodity pools operated by DB Commodity Services 
LLC (the ``Managing Owner'').\5\
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    \5\ The Managing Owner is registered as a commodity pool 
operator (``CPO'') and commodity trading advisor (``CTA'') with the 
Commodity Futures Trading Commission (``CFTC'') and is a member of 
the National Futures Association (``NFA''). The Managing Owner 
serves as the CPO and CTA of the Fund and the Master Fund.
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    The investment objective of the Fund and the Master Fund is to 
reflect the performance of the Index, over time, less the expenses of 
the operation of the Fund and the Master Fund. The Fund pursues its 
investment objective by investing substantially all of its assets in 
the Master Fund. Each Share correlates with a Master Fund share issued 
by the Master Fund and held by the Fund. The Master Fund pursues its 
investment objective by taking futures positions in currencies 
represented in the Index and adjusts its holdings quarterly as the 
Index is adjusted. The Master Fund also holds cash and U.S. Treasury 
securities for deposit with futures commission merchants as margin, and 
other high-credit-quality short-term fixed income securities. The Fund 
is not managed on a discretionary basis but instead seeks to track the 
Index pursuant to established rules and procedures.
    The Index, at any time, is comprised of six currencies from The 
Group of Ten (``G10'') countries,\6\ futures contracts on which are 
traded on the Chicago Mercantile Exchange (``CME''). The notional 
amounts of each currency included in the Index (``Index Currency'') are 
based on the Index closing level as of the period in which the Index is 
re-weighted.\7\ The Index closing level reflects an arithmetic weighted 
average of the change in the futures positions on the Index Currencies' 
exchange rates against the U.S. dollar since March 12, 1993. On such 
date, the Index closing level was $100. The sponsor of the Index is 
Deutsche Bank AG London (``DB London'' or the ``Index Sponsor'').
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    \6\ The G10 currencies are the U.S. Dollar, the Euro, the 
Japanese Yen, the Canadian Dollar, the Swiss Franc, the British 
Pound, the Australian Dollar, the New Zealand Dollar, the Norwegian 
Krone, and the Swedish Krona (the ``Eligible Index Currencies'').
    \7\ The Index Sponsor reviews and re-weights the Index on a 
quarterly basis.
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    Issuances of Shares are made only in one or more blocks 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'') \8\ with the Managing Owner.
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    \8\ 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; and (iii) has in effect a 
valid Participant Agreement.
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    A Basket will be issued in exchange for an amount of cash equal to 
the Fund's net asset value (``NAV'') per Share times 200,000 Shares 
(``Basket Amount''). The Basket Amount will be determined on each 
business day by The Bank of New York (``Administrator'').\9\ An 
Authorized Participant that wishes to purchase a Basket must transfer 
the Basket Amount to the Administrator (the ``Cash Deposit Amount''). A 
Basket is then separable upon issuance into the Shares that can be 
traded on Nasdaq on a UTP basis.
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    \9\ At or about 4 p.m. ET each business day, the Administrator 
determines the Basket Amount for orders placed by Authorized 
Participants received before 1 p.m. ET that day. Thus, although 
Authorized Participants place orders to purchase Shares throughout 
the trading day until 1 p.m. ET, the actual Basket Amount is 
determined at 4 p.m. ET or thereafter. On each business day, the 
Administrator makes available, immediately prior to 9:30 a.m. ET, 
the most recent Basket Amount for the creation of a Basket. 
According to the Amex Order, Amex disseminates every 15 seconds 
throughout the trading day, via the facilities of the Consolidated 
Tape (``CT''), an amount representing, on a per-Share basis, the 
current value of the Basket Amount.
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    The Shares are not individually redeemable may be redeemed only in 
Baskets. To redeem, 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 will receive cash 
in exchange for each Basket surrendered in an amount equal to the NAV 
per Basket (the ``Cash Redemption Amount''). Upon the surrender of the 
Shares and payment of applicable redemption transaction fee, taxes, or 
charges, the Administrator will

[[Page 27887]]

deliver to the redeeming Authorized Participant the Cash Redemption 
Amount.
    After 4 p.m. ET each business day, the Administrator determines the 
NAV \10\ for the Fund, utilizing the current settlement value of 
exchange-traded futures contracts on the Index Currencies, and the 
Administrator, Amex, and Managing Owner will disseminate the NAV for 
the Shares and the Basket Amount (for orders placed during the day). 
The Basket Amount and the NAV are communicated by the Administrator to 
all Authorized Participants via facsimile or e-mail.\11\ Nasdaq will 
provide a hyperlink to the Fund's Web site at http://www.dbfunds.db.com from its Web site at http://www.nasdaq.com. The Web site for the Fund 

contains quantitative information about the Fund and the Fund's 
prospectus. Quotations for and last sale information regarding the 
Shares are disseminated via the CT and the Consolidated Quotation 
Service.
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    \10\ The NAV for the Fund is the total assets of the Master Fund 
less total liabilities of the Master Fund. The NAV is calculated by 
including any unrealized profit or loss on futures contracts and any 
other credit or debit accruing to the Master Fund but unpaid or not 
received by the Master Fund. The NAV is then used to compute all 
fees (including the management and administrative fees) that are 
calculated from the value of Master Fund assets. The Administrator 
calculates the NAV per Share by dividing the NAV by the number of 
Shares outstanding.
    \11\ According to the Amex Order, Amex has represented that the 
NAV for the Fund will be made available to all market participants 
at the same time. If the NAV is not disseminated to all market 
participants at the same time, Amex will halt trading in the Shares.
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    To provide updated information relating to the Fund for use by 
investors, professionals, and persons wishing to create or redeem the 
Shares, Amex disseminates through the facilities of the CT an updated 
Indicative Fund Value (``IFV''). The IFV is disseminated on a per-Share 
basis every 15 seconds from 9:30 a.m. to 4:15 p.m. ET. The IFV is 
calculated based on the cash required for creations and redemptions 
(i.e., NAV x 200,000) adjusted to reflect the price changes of the 
Index Currencies through investments held by the Master Fund (i.e., 
futures contracts and options on futures and/or forwards).
    DB London, as the Index Sponsor, publishes the value of the Index 
at least once every 15 seconds throughout each trading day on the CT, 
Bloomberg, and Reuters, and on its Web site at http://index.db.com and the Fund's Web site at http://www.dbfunds.db.com. The closing Index 

level is similarly provided by DB London and the Fund. In addition, any 
adjustments or changes to the Index also are provided by DB London and 
the Fund on their respective Web sites.
    The daily settlement prices for the foreign currency futures 
contracts comprising the Index and held by the Master Fund are publicly 
available on the Internet Web sites of the futures exchanges trading 
the particular contracts, as well as automated quotation systems, 
published or other public sources, or on-line information services such 
as Bloomberg or Reuters. All of the foreign currency futures contracts 
in which the Master Fund currently expects to invest are traded on the 
CME, although currency futures contracts on the eligible Index 
Currencies also trade on other futures exchanges and the Master Fund 
may invest in such contracts.\12\
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    \12\ Such other futures exchanges would be required to be 
members of the Intermarket Surveillance Group (``ISG'') or to have 
comprehensive surveillance sharing agreements with Nasdaq.
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    Nasdaq will 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 will 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.\13\ Nasdaq is able to obtain information regarding trading 
in the Shares and the underlying currency 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 CME. 
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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    \13\ 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 \14\ in general and Section 6(b)(5) of the Act \15\ 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, Nasdaq believes that the proposal is 
consistent with Rule 12f-5 under the Act \16\ 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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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ 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-2007-049 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.

[[Page 27888]]

All submissions should refer to File Number SR-NASDAQ-2007-049. 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-2007-049 and should be submitted on or before 
June 7, 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.\17\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\18\ 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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    \17\ 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).
    \18\ 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,\19\ which permits an exchange to trade, 
pursuant to UTP, a security that is listed and registered on another 
exchange.\20\ 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.\21\ The Commission also finds that the 
proposal is consistent with Rule 12f-5 under the Act,\22\ 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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    \19\ 15 U.S.C. 78l(f).
    \20\ 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.
    \21\ See supra note 4 (approving listing and trading of Shares 
on Amex). See also Securities Exchange Act Release No. 54569 
(October 4, 2006) 71 FR 60594 (October 13, 2006) (approving UTP 
trading of Shares on NYSE Arca).
    \22\ 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,\23\ which sets forth 
Congress's 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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    \23\ 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.\24\ 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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    \24\ 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,\25\ that the proposed rule change (SR-NASDAQ-2007-049) be, and it 
hereby is, approved on an accelerated basis.
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    \25\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E7-9466 Filed 5-16-07; 8:45 am]

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