[Federal Register: March 23, 2007 (Volume 72, Number 56)]
[Notices]
[Page 13843-13846]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23mr07-135]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55489; File No. SR-NASDAQ-2007-023]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change To Trade the Shares of the PowerShares DB U.S. Dollar Index
Bullish Fund and the PowerShares DB U.S. Dollar Index Bearish Fund
Pursuant to Unlisted Trading Privileges
March 19, 2007.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 9, 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
proposed rule change on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes to trade shares of the PowerShares DB U.S. Dollar
Index Bullish Fund (the ``Bullish Fund'') and the PowerShares DB U.S.
Dollar Index Bearish Fund (the ``Bearish Fund,'' and together with the
Bullish Fund, the ``Funds'') pursuant to unlisted trading privileges
(``UTP''). The text of the proposed rule change is available at Nasdaq,
the Commission's Public Reference Room, and nasdaq.complinet.com.
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
Pursuant to Nasdaq Rule 4630, which permits the Exchange to approve
for UTP trading a ``commodity-related security'' that is issued by a
trust, partnership, commodity pool, or similar entity that invests in
any combination of commodities, futures contracts, options on futures
contracts, forward contracts, commodity swaps, or other related
derivatives, the Exchange proposes to trade pursuant to UTP the shares
of the Funds (the ``Shares''). The Shares represent beneficial
ownership interests in the corresponding common units of beneficial
interests of the DB U.S. Dollar Index Master Bullish Fund and the DB
U.S. Dollar Index Master Bearish Fund, respectively (collectively, the
``Master Funds''). A proposal to list and trade the Shares by the
American Stock Exchange
[[Page 13844]]
LLC (``Amex'') has been approved by the Commission.\3\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 55292 (February 14,
2007), 72 FR 8406 (February 26, 2007) (SR-Amex-2006-86) (``Amex
Order''); Securities Exchange Act Release No. 55110 (January 16,
2007), 72 FR 3171 (January 24, 2007) (SR-Amex-2006-86) (``Amex
Notice'').
---------------------------------------------------------------------------
The overall investment objective of each of the Funds and the
Master Funds is to reflect the performance of their respective
benchmark index, less expenses, plus the excess, if any, of the
corresponding Master Fund's interest income from its holdings of U.S.
Treasury and other high-credit-quality, short-term fixed income
securities over its expenses. The Bullish Fund seeks to track the
``Long Index'' by investing in long positions in futures contracts
(``DX Contracts'') on the U.S. Dollar Index[supreg] (``USDX''), and the
Bearish Fund seeks to track the ``Short Index'' by investing in short
positions in DX Contracts on the USDX.\4\ Both the Long Index and Short
Index (collectively, the ``Indexes'') are designed to reflect the
return from investing in the first-to-expire DX Contract. DX Contracts
are traded through the FINEX currency markets of the New York Board of
Trade (``NYBOT'').
---------------------------------------------------------------------------
\4\ The USDX, which is composed of six underlying foreign
currencies (Euro, Japanese Yen, British Pound, Canadian Dollar,
Swedish Krona, and Swiss Franc, collectively, the ``Index
Currencies''), is composed of notional amounts of each Index
Currency reflecting a geometric average of the change in the Index
Currencies' exchange rates against the U.S. Dollar (``USD'')
relative to those as of March 1973. The value of the USDX reflects a
general indication of the international value of the USD by
averaging the exchange rates between the USD and the Index
Currencies.
---------------------------------------------------------------------------
The use of a long position in a DX Contract in the construction of
the Long Index causes the Long Index level to rise as a result of any
upward price movement in the DX Contract. Conversely, the use of a
short position in a DX Contract in the construction of the Short Index
causes the Short Index level to rise as a result of any downward price
movement in the DX Contract. As a result, the performance of the Long
Index and Short Index would reflect any rise or fall of the USD versus
the underlying basket of Index Currencies.\5\
---------------------------------------------------------------------------
\5\ The calculation methodologies of each Index, as well as the
structure and operation of the Funds and the creation and redemption
procedures for the Shares, are described in greater detail in the
Amex Notice.
---------------------------------------------------------------------------
Deutsche Bank AG London (the ``Index Sponsor'') calculates the
values of the Indexes during the trading day and such values are
disseminated at least every 15 seconds through the facilities of the
Consolidated Tape (``CT''), major market data vendors, the Web site of
DB Commodity Services LLC, as operator of the Funds and Master Funds
(the ``Managing Owner''), and the Index Sponsor's Web site. Amex also
disseminates for each of the Funds on a per-Share basis an updated
``Indicative Fund Value,'' which reflects the cash required for
creations and redemptions for each Fund, adjusted to reflect the price
changes of the DX Contracts and the holdings of U.S. Treasury
securities and other high-credit-quality, short-term fixed income
securities, at least every 15 seconds between 9:30 a.m. to 4:15 p.m.
Eastern Time (``ET''). Shortly after 4 p.m. ET each business day, the
Bank of New York (the ``Administrator''), determines the net asset
value (``NAV'') for each of the Funds and disseminates such NAV per
Share to all market participants at the same time.\6\
---------------------------------------------------------------------------
\6\ The Exchange represents that if Amex halts trading in the
Shares of any Fund because the NAV per Share for such Fund is no
longer disseminated to all market participants at the same time, it
would also halt trading such Shares. E-mail from Jonathan Cayne,
Associate General Counsel, Nasdaq, to Edward Cho, Special Counsel,
Division of Market Regulation, Commission, dated March 14, 2007
(clarifying that the Exchange would also halt trading the Shares in
such an event).
---------------------------------------------------------------------------
On each business day, the Administrator makes available immediately
prior to 9:30 a.m. ET the most recent Cash Deposit Amount \7\for the
creation of a Basket,\8\ and Amex disseminates the current value of the
Cash Deposit Amount on a per-Share basis at least every 15 seconds
throughout the trading day. The daily settlement prices of the DX
Contracts, specific contract specifications, and delayed futures
contract information on current and past trading sessions, including
futures quotes and last sale information, are publicly available on
NYBOT's Web site and on the Web sites of various market data vendors,
news publications, automated quotation systems, or other financial
information services.
---------------------------------------------------------------------------
\7\ The Cash Deposit Amount is the amount of cash equal to the
NAV per Share times 200,000 Shares to be transferred to the
Administrator for the purchase of one or more Baskets (as defined
below).
\8\ A Basket is a single block of 200,000 Shares; issuances of
the Shares can be made only in one or more Baskets.
---------------------------------------------------------------------------
Information regarding the Shares is available through Amex, the
Index Sponsor, and various independent sources. Specifically, Amex
disseminates on a daily basis for each of the Funds information with
respect to the daily trading volume of each of the Shares, the number
of Shares outstanding, the closing prices of each Fund's Shares, the
corresponding NAV, and a hyperlink on its Web site to the Index
Sponsor's Web site. In addition, the Web site for the Funds contains
the following information: (1) The current NAV per Share daily, the
prior business day's NAV, and the reported closing price; (2) the mid-
point of the bid-ask price in relation to the NAV as of the time the
NAV is calculated (the ``Bid-Ask Price''); (3) the calculation of the
premium or discount of such price against such NAV; (4) 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; (5) the prospectus; and (6)
other applicable quantitative information.
Nasdaq states that it will halt trading in the Shares of a Fund
under the conditions specified in Nasdaq Rules 4120 and 4121. The
conditions for a trading halt include a regulatory halt by the original
listing market. Nasdaq will also halt trading in the Shares if the
original listing market delists them. UTP trading in the Shares will be
governed by provisions of Nasdaq Rule 4120(b) relating to temporary
interruptions in the calculation or wide dissemination of the
Indicative Fund Value or the value of the Indexes.\9\ Additionally, the
Exchange may cease trading the Shares if other unusual conditions or
circumstances exist which, in the opinion of the Exchange, make further
dealings on the Exchange detrimental to the maintenance of a fair and
orderly market. The Exchange represents that it would follow any
procedures with respect to initiating any trading halts as set forth in
Nasdaq Rule 4120(c).
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 55269 (February 9,
2007), 72 FR 7490 (February 15, 2007) (SR-NASDAQ-2006-050) (setting
forth trading halt requirements when the Exchange is trading a
product pursuant to UTP). See also supra note 6.
---------------------------------------------------------------------------
Nasdaq deems the Shares of the Funds to be equity securities, and
therefore, trading in the Shares would be subject to Nasdaq's existing
rules governing the trading of equity securities. Trading in the Shares
will also be subject to Nasdaq Rule 4630 (Trading in Commodity-Related
Securities). The trading hours for the Shares on Nasdaq will be 9:30
a.m. to 4 p.m. ET.
In connection with the trading of the Shares, Nasdaq will inform
its members in an Information Circular, prior to the commencement of
trading, of the special characteristics and risks associated with
trading the Shares. Specifically, the Information Circular will discuss
the following: (1) The procedures for purchases and redemptions of
Shares in Baskets (and that Shares are not individually redeemable);
(2) Nasdaq Rule 2310, which imposes suitability obligations on Nasdaq
members with respect to recommending transactions in
[[Page 13845]]
the Shares to customers; (3) how information regarding the Indicative
Fund Value is disseminated; (4) the requirement that members deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction;\10\ (5) other
relevant trading information; (6) any exemptive, no-action, and/or
interpretive relief granted by the Commission from any rules under the
Act; (7) the various fees and expenses to which the Funds are subject;
and (8) the fact that the Commodity Futures Trading Commission has
regulatory jurisdiction over the trading of futures contracts. The
Information Circular will also disclose the trading hours of the Shares
of the Funds, when the NAV for the Shares will be calculated each
trading day, information about the Shares of each Fund, and the public
availability of the corresponding Index values on the Funds' Web site.
---------------------------------------------------------------------------
\10\ Specifically, the Information Circular will also note that
(1) investors purchasing Shares directly from a Fund (by delivery of
the corresponding Cash Deposit Amount) will receive a prospectus and
(2) members purchasing Shares from a Fund for resale to investors
will deliver a prospectus to such investors.
---------------------------------------------------------------------------
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 will be subject to NASD's surveillance
procedures for equity securities, in general, and exchange-traded
funds, in particular.\11\ The Exchange may obtain information via the
Intermarket Surveillance Group (``ISG'') from other exchanges who are
members or affiliates of the ISG, including NYBOT.
---------------------------------------------------------------------------
\11\ NASD surveils trading on Nasdaq pursuant to a regulatory
services agreement. Nasdaq is responsible for NASD's performance
under this regulatory services agreement.
---------------------------------------------------------------------------
2. Statutory Basis
The proposal is consistent with Section 6(b) of the Act \12\ in
general and Section 6(b)(5) of the Act \13\ in particular in that it 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. In addition, the
proposal is consistent with Rule 12f-5 under the Act \14\ because
Nasdaq 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.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
\14\ 17 CFR 240.12f-5.
---------------------------------------------------------------------------
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 purpose of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
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-2007-023 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-2007-023.
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 offices 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-2007-023 and should be submitted on or before
April 13, 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.\15\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\16\ 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.
---------------------------------------------------------------------------
\15\ In approving this rule change, the Commission notes that it
has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
\16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In addition, the Commission finds that the proposal is consistent
with Section 12(f) of the Act,\17\ which permits an exchange to trade,
pursuant to UTP, a security that is listed and registered on another
exchange.\18\ The Commission notes that it previously approved the
listing and trading of the Shares on Amex.\19\ The Commission also
finds that the proposal is consistent with Rule 12f-5 under the
Act,\20\ 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
[[Page 13846]]
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.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78l(f).
\18\ 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.
\19\ See supra note 3.
\20\ 17 CFR 240.12f-5.
---------------------------------------------------------------------------
The Commission further believes that the proposal is consistent
with Section 11A(a)(1)(C)(iii) of the Act,\21\ 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 publicly available on the Web site of the Funds and Amex.
Such Web sites also disseminate information about the current and most
recent NAV per Share, the Bid-Ask Price of the Shares, and discount and
premium information of the Bid-Ask Price against the NAV. The Index
Sponsor calculates and publishes through the facilities of the CT and
major market data vendors the intra-day values of each Index at least
every 15 seconds during regular trading hours and the closing levels of
each Index. In addition, Amex disseminates through the CT for each of
the Funds on a per-Share basis an updated Indicative Fund Value, which
generally reflects the cash required for creations and redemptions of
Shares, at least every 15 seconds during the trading day. The
Administrator calculates and simultaneously disseminates once each
business day to all market participants the NAV per Share and publishes
the most recent Cash Deposit Amount on a per-Share basis. Also, the
daily settlement prices of and other applicable information regarding
the DX Contracts, including futures quotes and last sale information,
are publicly available on NYBOT's Web site and on the Web sites of
various market data vendors, automated quotation systems, and other
financial information services.
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------
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 address
any concerns associated with the trading of the Shares on a UTP basis.
(2) The Exchange would inform its members in an Information
Circular of the special characteristics and risks associated with
trading the Shares, including suitability recommendation requirements.
(3) The Exchange would require its members to deliver a prospectus
to investors purchasing Shares prior to or concurrently with a
transaction in such Shares and will note this prospectus delivery
requirement in the Information Circular.
This approval order is conditioned on the Exchange's adherence to the
foregoing 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 above, the Commission previously found that
the listing and trading of the Shares on Amex is consistent with the
Act. The Commission presently is not aware of any regulatory issue that
should cause it to revisit that finding 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 such Shares.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\22\ that the proposed rule change (SR-NASDAQ-2007-023) be, and it
hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\23\
---------------------------------------------------------------------------
\23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-5348 Filed 3-22-07; 8:45 am]
BILLING CODE 8010-01-P