[Federal Register Volume 68, Number 76 (Monday, April 21, 2003)]
[Notices]
[Pages 19591-19593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-9675]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47675; File No. SR-NQLX-2003-03]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
Nasdaq Liffe Markets, LLC To Amend Its Initial Listing Standards and 
Maintenance Standards for Single Stock Futures

April 14, 2003.
    Pursuant to section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-7 under the Act,\2\ notice is hereby given 
that on January 27, 2003, Nasdaq Liffe Markets, LLC (``NQLX'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule changes described in items I, II, and III below, 
which Items have been prepared by the NQLX. On April 4, 2003, NQLX 
filed Amendment No. 1 to the proposed rule change.\3\ The Commission is 
publishing this notice to solicit comments on the proprosed rule 
changes, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 17 CFR 240.19b-7.
    \3\ On April 4, 2003, NQLX filed Form 19b-7, which completely 
replaces the initial filing in its entirety. Telephone conversation 
between Kathleen Hamm, Senior Vice President, Regulation and 
Compliance, NQLX, and Christopher Solgan, Attorney, Division of 
Market Regulation (``Division''), Commission, on April 8, 2003.
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    On January 27, 2003, NQLX submitted the proposed rule change to the 
Commodities Futures Trading Commission (``CFTC'') for approval. On 
April 3, 2003, NQLX submitted the Amendment No. 1 to proposed rule 
change to the CFTC for approval. Under section 19(b)(7)(B) of the 
Act,\4\ the proposed rule change may take effect upon approval by the 
CFTC.
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    \4\ 15 U.S.C. 78s(b)(7)(B).
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I. Self-Regulatory Organization's Description of the Proposed Rule 
Change

    NQLX proposed to amend both its initial and maintenance listing 
standards (NQLX Rules 902 and 903) as they relate to the pricing 
criteria for securities that underlie security futures products offered 
by NQLX. Currently NQLX Rule 902(b)(8) requires that he market price 
per share of any underlying security must be at least $7.50 for the 
majority of trading days during the three calendar months before 
listing of the security futures contact, as measured by the lowest 
closing price reported in any market in which the underlying security 
traded on each of the subject days.
    In addition to meeting the current listing requirements of NQLX 
Rule 902(b), NQLX proposes adding a new rule provision, NQLX Rule 
902(b)(8)(i), that would allow the listing of a security futures 
product if the underlying securities are ``covered securities,'' as 
defined under Section 18(b)(1)(A) of the Securities Act of 1933 (``1933 
Act'') (``covered securities''),\5\ and have reported at least a $3.00 
per share closing price on their primary for the five previous 
consecutive trading days before the initial listing of the product. For 
initial listings of security future products with underlying securities 
that are not covered securities, NQLX Rule 90218(b)(8)(ii) will 
continue to require those underlying securities to trade at $7.50 or 
above for the majority of trading days during the three calendar months 
before listing of the security futures contract.
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    \5\ Section 18(b0(11)(A) of the 1933 Act provides that, ``[a] 
security is a covered security if such security is--listed, or 
authorized for listing, on the New York Stock Exchange or the 
American Stock Exchange, or listed, or authorized for listing, on 
the National Market system of the Nasdaq Stock Market (or any 
successor to such entities). * * *'' 15 U.S.C. 77r(b)(1)(A). The 
term ``covered security'' would not include those securities defined 
under section 18(b)(1)(B) of the 1933 Act. 15 U.S.C. 77r(b)(1)(B).
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    NQLX also proposes to add NQLX Rule 902(b)(8)(iii) to allow the 
initial listing of a security futures contract if the underlying 
security (1) meets the requirements under NQLX Rule 903(c); (2) 
underlies a security futures contract that already trades on at least 
one other registered national securities exchange; and (3) underlies a 
security futures contract that has had average daily trading volume of 
at least 5,000 contracts during the three calendar months immediately 
before the date of listing. NQLX represents that this proposed change 
is consistent with similar initial listing standards in place at 
several options exchanges.\6\
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    \6\ See, e.g., Commentary .01(4) to American Stock Exchange LLC 
(``Amex'') Rule 916; International Securities Exchange, Inc. 
(``ISE'') Rule 502(b)(5)(ii); Pacific Exchange, Inc. (``PCX'') Rule 
3.6(a)(4).
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    As to maintenance listing standards, in addition to meeting the 
current listing requirements of NQLX rule 903(c), NQLX proposes to 
amend NQLX Rule 903(c)(6) to allow the listing of a new delivery months 
for a security futures product if the underlying securities have 
reported at least a $3.00 per share closing price on their primary 
market on the trading day immediately before the listings of the new 
delivery month.\7\ NQLX represents that this

[[Page 19592]]

change is consistent with the maintenance listing standards of the 
Chicago Board Options Exchange, Inc. (``CBOE'').\8\
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    \7\ Currently, NQLX does not anticipate adding additional series 
intra-day. However, if NQLX ever determines it appropriate to add a 
new series intra-day, NQLX will submit a proposed rule change to the 
Commission and CFTC to use the price per share of the last reported 
trade on the primary market on which the underlying security trades 
at the time NQLX determines to add the new series.
    \8\ See Interpretations and Policies .01 and .02 to CBOE Rule 
5.4. See also Securities Exchange Act Release No. 44964 (October 19, 
2001), 66 FR 54599 (October 29, 2001).
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    The text of the proposed rule change appears below. New text is in 
italics. Deleted text is in brackets.\9\
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    \9\ NQLX authorized technical corrections to the proposed rule 
text during a telephone conversion between Kathleen Hamm, Senior 
Vice President, Regulation and Compliance, NQLX, and Christopher 
Solgan, Attorney, Division, Commission, on April 8, 2003.
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Rule 902 Initial Listing Standards: Physically-Settled Security Futures 
Contracts.

    (a) (1)-(2) No change.
    (b) Initial Listing Standards-Underlying Securities are Single 
Securities: To initially list a physically-settled Security Futures 
Contract with an underlying single security, the single security must:
    (1)-(7) No change.
    (8) (i) have a market price per security of at least $3.00 
(calculated by the closing price reported on the primary market on 
which the underlying security trades) for the previous five consecutive 
trading days before listing if the underlying security is a ``covered 
security'' as defined by section 18(b)(1)(A) of the Securities Act of 
1933 (``Covered Security''); or
    (ii) have a market price per security of at least $7.50 (calculated 
by the lowest closing price reported in any market on which the 
underlying security traded) for the majority of trading days during the 
three calendar months before listing if the underlying security is not 
a ``covered security'' as defined by section 18(b)(1)(A) of the 
Securities Act of 1933 (``Uncovered Security''); or
    (iii) (A) meet the requirement of Rule 903(c), and
    (B) underlie a securities futures contract that (i) trades on at 
least one other registered national securities exchange and (ii) has 
had an average daily trading volume of at least 5,000 contracts during 
the three calendar months immediately before the date of listing; and
    (9) No change.
    (c)-(d) No change.
    (e) Initial Listing Standards-Underlying Securities are Restructure 
Securities: For a Restructure Security the requirements of Rule 902(b) 
apply, except that:
    (1)-(4) No change.
    (5) Restructure Securities Issued in Public Offering or Rights 
Distribution: To determine whether Rule 902(b)(8) is deemed satisfied 
for a Restructure Security that is distributed pursuant to a public 
offering or a rights distribution, NQLX may look back at the market 
price history of the Original Security if:
    (i) the Look-Back Test of Rule 902(e)(3) is satisfied; and
    (ii) the Restructure Security
    (A) trades ``regular way'' on an exchange or automatic quotation 
system for at least five trading days immediately before the date that 
NQLX selects the Restructure Security as an underlying security for a 
Security Futures Contract, and
    (B) closes trading on each of those five previous trading days, and 
opens trading on the day of selection, at least at (i) $3.00 if the 
Restructure Security is a Covered Security (as defined by Rule 
902(b)(8)(i)) or (ii) $7.50 if the Restructure Security is an Uncovered 
Security (as defined by Rule 902(b)(8)(ii)).

Rule 9031 Maintenance Listing Standards: Physically-Settled Security 
Futures Contracts:

    (a) (1)-(5) No change.
    (b) No change.
    (c) Maintenance Standards--Underlying Securities are Single 
Securities Other than Shares of Exchange-Traded Funds, Shares of 
Registered Closed-End Management Investment Companies, or Trust-Issued 
Receipts: When the underlying of a physically-settled Security Futures 
Contract is a single security other than shares of exchange-traded 
funds, shares of registered closed-end management investment companies, 
or trust-issued receipts, to list a new delivery month of the Security 
Futures Contract, the single security must:
    (1)-(5) No change.
    (6) ](i)] have a market price per security of at least $3.00 
(calculated by the closing price reported on the primary market on 
which the underlying security trades) on the trading day immediately 
before listing a new delivery month [if the underlying security is a 
Covered Security (as defined by Rule 902(b)(8)(i)), or] and
    [(ii) have a market price per security of at least $5.00 for an 
Uncovered Security (as defined by Rule 902(b)(8)(ii)) on a majority of 
the trading days during the past six calendar months (measured by the 
highest closing price reported for the underlying security in any 
market trading the underlying); provided, however, that NQLX may waive 
this requirement and open for trading a new delivery month of the 
Security Futures Contract, if:
    (A) the open interest by Customers (on a two-sided basis) equals or 
exceeds 4,000 contract for all delivery months;
    (B) the aggregate market value of the underlying security equals or 
exceeds $50 million;
    (C) the average daily trading volume in the underlying security (in 
all markets that trade the underlying) has been at least 109,000 shares 
or receipts evidencing the underlying security in each of the prior 12 
months; and
    (D) the market price per share of or receipts evidencing the 
underlying security:
    (i) has closed at $3.00 or above on a majority of trading days 
during the past six calendar months, as measured by the highest closing 
price for the underlying security reported in any market that trades 
the underlying security, and
    (ii) is at least $3.00 on the day NQLX lists the new delivery month 
for trading;]
    (7) No change.
    (d)-(f) No change.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    NQLX has prepared statements concerning the purpose of, and basis 
for, the proposed rule change, burdens on competition, and comments 
received from members, participants, and others. The text of these 
statements may be examined at the places specified in Item IV below. 
These statements are set forth in Sections A, B, and C below.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NQLX proposes to adopt revisions to its current listing standards, 
which it believes are no less restrictive than comparable listing 
standards for options traded on a national securities exchange or 
national securities association,\10\ because the options listing and 
maintenance standards of the Amex, CBOE, ISE, and PCX contain similar 
provisions.\11\ NQLX believes that adoption of the current proposal 
would provide investors with security futures

[[Page 19593]]

products that are useful and in demand as tools to manage the risks of 
their investment portfolios.
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    \10\ 15 U.S.C. 78f(h)(3)(C).
    \11\ See Securities Exchange Act Release No. 34-47190 (January 
15, 2003), 68 FR 3072 (January 22, 2003) (approving SR-CBOE-2002-
62). See, e.g., ISE Rule 502(b)(5)(ii); PCX Rule 3.6(a)(4); 
Interpretations and Policies .01 and .02 to CBOE Rule 5.4; and 
Commentary .01(4) to Amex Rule 916.
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    NQLX believes that its proposed rule changes comply with the 
requirements under section 6(h)(3) of the Act\12\ and the criteria 
under section 2(a)(1)(D)(i) of the CEA,\13\ as modified by joint orders 
of the Commission and the CFTC, and that its listing standards are no 
less restrictive than comparable listing standards for options traded 
on a national securities exchange or national securities 
association.\14\
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    \12\ 15 U.S.C. 78f(h)(3).
    \13\ 7 U.S.C. 2(a)(1)(D)(i).
    \14\ 15 U.S.C. 78f(h)(3)(C).
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2. Statutory Basis
    NQLX files this proposed rule change pursuant to section 19(b)(7) 
of the Act.\15\ NQLX believes that this proposed rule change is 
consistent with the requirements of the Commodity Futures Modernization 
Act of 2000,\16\ including the requirement that trading in a listed 
security futures is not readily susceptible to manipulation of its 
price nor to causing or being used to manipulate the price of the 
underlying security, options on the security, or options on a group or 
index including the security.\17\ NQLX further believes that its 
proposed rule change complies with the requirements under section 
6(h)(3) of the Act\18\ and the criteria under Section 2(a)(1)(D)(i) of 
the CEA,\19\ as modified by joint orders of the Commission and the 
CFTC. In addition, NQLX believes that its proposed rule change is 
consistent with the provisions of section 6 of the Act.\20\ in general, 
and section 6(b)(5) of the Act,\21\ in particular, which requires, 
among other things, that the rules of an exchange be designed to 
prevent fraudulent and manipulative acts and practices, and, in 
general, to protect investors and the public interest.
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    \15\ 15 U.S.C. 78s(b)(7).
    \16\ P.L. 106-554, 114 Stat. 2763 (2000).
    \17\ 15 U.S.C. 78f(h)(3)(H).
    \18\ 15 U.S.C. 78f(h)(3).
    \19\ 7 U.S.C. 2(a)(1)(D)(i).
    \20\ 15 U.S.C. 78f.
    \21\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NQLX does not believe that the proposed rule changes will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement of Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    NQLX neither solicited nor received written comment on the proposed 
rule changes.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The proposed rule change has become effective on January 27, 2003, 
except that the changes made in Amendment No. 1 have become effective 
on April 4, 2003. Within 60 days of the date of effectiveness of the 
proposed rule change, the Commission, after consultation with the CFTC, 
may summarily abrogate the proposed rule change and require that the 
proposed rule change be refiled in accordance with the provisions of 
section 19(b)(1) of the Act.\22\
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    \22\ 15 U.S.C. 78s(b)(1).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, conflicts with the Act. Persons making written 
submissions should file nine copies of the submission with the 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609. Comments also may be submitted 
electronically to the following e-mail address: [email protected]. 
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 these filings also will 
be available for inspection and copying at the principal office of 
NQLX. All submissions should refer to File No. SR-NQLX-2003-03 and 
should be submitted by May 12, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(75).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-9675 Filed 4-18-03; 8:45 am]
BILLING CODE 8010-01-M