[Federal Register Volume 69, Number 100 (Monday, May 24, 2004)]
[Notices]
[Pages 29597-29605]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-11650]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49715; File No. SR-NASD-2004-061]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change and Amendment 
No. 1 Thereto by the National Association of Securities Dealers, Inc. 
Relating to the Listing and Trading of 97% Protected Notes Linked to 
the Global Equity Basket

May 17, 2004.
    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 April 5, 2004, the National Association of Securities Dealers, Inc. 
(``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc. 
(``Nasdaq''), filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by Nasdaq. 
Nasdaq filed Amendment No. 1 to the proposed rule change on May 12, 
2004.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons and is 
approving the proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Alex Kogan, Associate General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division of 
Market Regulation (``Division''), Commission, dated May 10, 2004 
(``Amendment No. 1''). In Amendment No. 1, Nasdaq provided certain 
details about the Nikkei 225 Index and the ES 50 Index.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to list and trade 97% Protected Notes Linked to the 
Performance of the Global Equity Basket (``Notes'') issued by Merrill 
Lynch & Co., Inc. (``Merrill Lynch'').

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

    In its filing with the Commission, Nasdaq 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. Nasdaq has prepared summaries, set forth in Sections A, 
B,

[[Page 29598]]

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 proposes to list and trade the Notes. The Notes provide for 
a return based upon the Global Equity Basket (``Basket'') and for 
protection of 97% of the principal. The Basket is a basket of three 
indexes, each initially equally weighted: the Nikkei 225 Index 
(``Nikkei''), the Dow Jones EURO STOXX 50 Index (``ES50''), and the S&P 
500 Index (``S&P 500'').
    Under Rule 4420(f), Nasdaq may approve for listing and trading 
innovative securities that cannot be readily categorized under 
traditional listing guidelines.\4\ Nasdaq proposes to list the Notes 
for trading under NASD Rule 4420(f).
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    \4\ See Securities Exchange Act Release No. 32988 (September 29, 
1993); 58 FR 52124 (October 6, 1993) (``1993 Order'').
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    The Notes, which will be registered under Section 12 of the Act, 
will initially be subject to Nasdaq's listing criteria for other 
securities under NASD Rule 4420(f). Specifically, under NASD Rule 
4420(f)(1):
    (A) The issuer shall have assets in excess of $100 million and 
stockholders' equity of at least $10 million.\5\ In the case of an 
issuer which is unable to satisfy the income criteria set forth in 
paragraph (a)(1), Nasdaq generally will require the issuer to have the 
following: (i) assets in excess of $200 million and stockholders' 
equity of at least $10 million; or (ii) assets in excess of $100 
million and stockholders' equity of at least $20 million;
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    \5\ Merrill Lynch satisfies this listing criterion.
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    (B) There must be a minimum of 400 holders of the security, 
provided, however, that if the instrument is traded in $1,000 
denominations, there must be a minimum of 100 holders;
    (C) For equity securities designated pursuant to this paragraph, 
there must be a minimum public distribution of 1,000,000 trading units; 
and
    (D) The aggregate market value/principal amount of the security 
will be at least $4 million.
    In addition, Merrill Lynch satisfies the listed marketplace 
requirement set forth in NASD Rule 4420(f)(2).\6\ Lastly, pursuant to 
NASD Rule 4420(f)(3), prior to the commencement of trading of the 
Notes, Nasdaq will distribute a circular to members providing guidance 
regarding compliance responsibilities and requirements, including 
suitability recommendations, and highlighting the special risks and 
characteristics of the Notes. In particular, Nasdaq will advise members 
recommending a transaction in the Notes to have reasonable grounds for 
believing that the recommendation is suitable for their customer upon 
the basis of the facts, if any, disclosed by such customer as to his 
other security holdings and as to his financial situation and needs. In 
addition, pursuant to NASD Rule 2310(b), prior to the execution of a 
transaction in the Notes that has been recommended to a non-
institutional customer, a member shall make reasonable efforts to 
obtain information concerning: (1) The customer's financial status; (2) 
the customer's tax status; (3) the customer's investment objectives; 
and (4) such other information used or considered to be reasonable by 
such member in making recommendations to the customer.
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    \6\ NASD Rule 4420(f)(2) requires issuers of securities 
designated pursuant to this paragraph [sic] to be listed on Nasdaq 
or the New York Stock Exchange (``NYSE'') or be an affiliate of a 
company listed on Nasdaq or the NYSE; provided, however, that the 
provisions of NASD Rule 4450 will be applied to sovereign issuers of 
``other'' securities on a case-by-case basis.
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    The Notes will be subject to Nasdaq's continued listing criterion 
for other securities pursuant to Rule 4450(c). Under this criterion, 
the aggregate market value or principal amount of publicly held units 
must be at least $1 million. The Notes also must have at least two 
registered and active market makers as required by Rule 4310(c)(1). 
Nasdaq will also consider prohibiting the continued listing of the 
Notes if Merrill Lynch is not able to meet its obligations on the 
Notes.
    The Notes are a series of senior non-convertible debt securities 
that will be issued by Merrill Lynch and will not be secured by 
collateral. The Notes will rank equally with all of Merrill Lynch's 
other unsecured and unsubordinated debt. The Notes will be issued in 
denominations of whole units (``Unit''), with each Unit representing a 
single Note. The original public offering price will be $10 per Unit. 
The Notes will have a term to maturity of 93 months. The Notes will not 
pay interest and are not subject to redemption either by Merrill Lynch 
or at the option of any beneficial owner before maturity.\7\
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    \7\ The actual maturity date is February 14, 2012.
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    At maturity, a beneficial owner will be entitled to receive a 
payment on the Notes based on the value of the Basket, but not less 
than $9.70 per Unit (``Minimum Redemption Amount''). Thus, the Notes 
provide investors the opportunity to obtain returns based on the 
Basket, and they provide for the return of at least 97% of the 
principal amount per Unit.
    Any payment that a beneficial owner may be entitled to receive in 
addition to the Minimum Redemption Amount (the ``Supplemental 
Redemption Amount'') will depend entirely on: (a) the change in the 
average value of the Basket at the close of the market on five business 
days shortly before the maturity of the Notes (the ``Ending Value'') 
from the Basket's value when the Notes are priced for initial sale to 
the public, which will be set at 100 (the ``Starting Value''), and (b) 
the Participation Rate, which will be a fixed value between 1.00 and 
1.05, as determined by Merrill Lynch on the date the Notes are priced 
for initial sale to the public and disclosed in the final prospectus 
supplement to be delivered in connection with sales of the Notes.\8\
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    \8\ Merrill Lynch has advised Nasdaq that Merrill Lynch will 
determine the exact value of the Participation Rate based, in part, 
on the prevailing level of interest rates and other financial market 
conditions on the date when the Notes are initially priced. Such 
value will be within the range listed above. The value of the 
Participation Rate will determine the minimum Ending Value needed in 
order for a beneficial owner to be entitled at maturity to receive 
at least the full principal amount per Unit. However, under no 
circumstances, will the beneficial owner be entitled at maturity to 
less than 97% of the principal amount per Unit.
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    On the date when the Notes are priced, a multiplier will be 
assigned to each component index in the Basket, such that the product 
of such a multiplier and of the price of such an index is equal to 
33.333. The value of the Basket will be the sum of the prices of its 
three component indexes, where each such price is adjusted by the use 
of a multiplier; the specific multiplier for each index is determined 
on the pricing date so as to assure that, initially, each index is 
weighted equally in the Basket (hence, the Starting Value will be equal 
to (33.333 x 3) or 100). The same multipliers that are determined on 
the date of Note pricing will then be used prior to maturity to 
calculate the Ending Value. Each component index's value will be 
adjusted by its initially established multiplier, and the sum of such 
three products will constitute the Ending Value. As such, the Ending 
Value will reflect the change that may have occurred in the combined 
value of the three component indexes, where the change in the value of 
each index is given equal weight.
    The Supplemental Redemption Amount per Unit will equal:

[[Page 29599]]

[GRAPHIC] [TIFF OMITTED] TN24MY04.000

but will not be less than zero.
    As a result, the Basket value will need to increase by a percentage 
between 2.87% and 3.00%, depending upon the actual Participation Rate 
(and assuming that it is, as expected, in the range of 1.00 to 1.05 
\9\), in order for a beneficial owner to be entitled to receive a total 
amount at maturity equal to the principal amount. If the value of the 
Basket decreases or does not increase sufficiently, a beneficial owner 
will be entitled to less than the principal amount of $10 per Unit. In 
no event, however, will a beneficial owner be entitled to less than the 
Minimum Redemption Amount.
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    \9\ See Amendment No. 1, supra note 3.
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    The Notes are cash-settled in U.S. dollars and do not give the 
holder any right to receive a portfolio security, dividend payments or 
any other ownership right or interest in the portfolio or index of 
securities comprising the Basket. The Notes are designed for investors 
who want to participate or gain exposure to the Basket, while 
protecting 97% of the principal, and who are willing to forego market 
interest payments on the Notes during the term of the Notes. The 
Commission has previously approved the listing of securities the 
performance of which has been directly or indirectly linked to or based 
on (wholly or partially) the Nikkei,\10\ the ES50,\11\ and the S&P.\12\
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    \10\ See Securities Exchange Act Release No. 38940 (August 15, 
1997), 62 FR 44735 (August 22, 1997) (approving the listing and 
trading of Market Index Target-Term Securities, the return on which 
is based on changes in the value of a portfolio of 11 foreign 
indexes, including Nikkei).
    \11\ See Securities Exchange Act Release Nos. 40303 (August 4, 
1998), 63 FR 42892 (August 11, 1998) (approving listing of BRoad 
InDex Guarded Equity-linked Securities linked to the value of the 
ES50); and 46021 (June 3, 2002), 67 FR 39753 (June 10, 2002) 
(approving listing of notes based on the Dow Jones EURO STOXX 50 
Return Index, which is based on the ES50).
    \12\ See Securities Exchange Act Release Nos. 48677 (October 21, 
2003), 68 FR 61524 (October 28, 2003) (approving the listing and 
trading of Accelerated Return Notes linked to the S&P 500); 47464 
(March 7, 2003), 68 FR 12116 (March 13, 2003) (approving the listing 
and trading of Market Recovery Notes Linked to the S&P 500); 30394 
(February 21, 1992), 57 FR 7409 (March 2, 1992) (approving the 
listing and trading of a unit investment trust linked to the S&P 
500); 27382 (October 26, 1989), 54 FR 45834 (October 31, 1989) 
(approving the listing and trading of Exchange Stock Portfolios 
based on the value of the S&P 500); 31591 (December 11, 1992), 57 FR 
60253 (December 18, 1992) (approving the listing and trading of 
Portfolio Depositary Receipts based on the S&P 500); and 19907 (June 
24, 1983), 48 FR 30814 (July 5, 1983) (approving the listing and 
trading of options on the S&P 500).
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    As stated, the Notes provide for a return on the Basket, which is a 
basket of three indexes, each initially equally weighted: the Nikkei 
225 Index (``Nikkei''), the Dow Jones EURO STOXX 50 Index (``ES50''), 
and the S&P 500 Index (``S&P 500'').
    The Nikkei is a stock index calculated, published and disseminated 
by Nihon Keizai Shimbun, Inc. (``NKS''), which measures the composite 
price performance of selected Japanese stocks. The Notes are not 
sponsored, endorsed, sold or promoted by NKS. NKS is a recognized 
source of business information in Japan and publishes a large business 
daily, The Nihon Keizai Shimbun, and four other financial newspapers. 
NKS is not affiliated with a securities broker or dealer. The 
Commission has previously approved the listing of other securities the 
performance of which has been linked to or based on, the Index.\13\
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    \13\ See Securities Exchange Act Release Nos. 49670 (May 7, 
2004) (approving the listing and trading of Accelerated Return Notes 
Linked to the Nikkei 225 Index); 38940 (August 15, 1997), 62 FR 
44735 (August 22, 1997) (approving the listing and trading of Market 
Index Target-Term Securities, the return on which is based on 
changes in the value of a portfolio of 11 foreign indexes, including 
the Nikkei 225 Index); and 27565 (December 22, 1989), 55 FR 376 
(January 4, 1990) (approving listing of Index Warrants based on the 
Nikkei Stock Average and noting the existence of a Memorandum of 
Understanding between the Commission and the Japanese Ministry of 
Finance for surveillance purposes).
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    The Nikkei is currently based on 225 underlying common stocks 
traded on the Tokyo Stock Exchange (the ``TSE'') and represents a broad 
cross-section of Japanese industry. All 225 underlying stocks are 
listed in the First Section of the TSE and are, therefore, among the 
most actively traded stocks on the TSE. The Nikkei is a modified, 
price-weighted index, which means a component stock's weight in the 
Nikkei is based on its price per share rather than total market 
capitalization of the issuer.
    NKS calculates the Nikkei by multiplying the per share price of 
each underlying stock by the corresponding weighting factor for that 
underlying stock (a ``Weight Factor''), calculating the sum of all 
these products and dividing that sum by a divisor. The divisor, 
initially set on May 16, 1949 at 225, was 23.156 as of April 30, 2004, 
and is subject to periodic adjustments as set forth below. Each Weight 
Factor is computed by dividing 1/87/21/53/850 by the par value of 
the relevant underlying stock, so that the share price of each 
underlying stock when multiplied by its Weight Factor corresponds to a 
share price based on a uniform par value of 1/87/21/53/850. Each 
Weight Factor represents the number of shares of the related underlying 
stock, which are included in one trading unit of the Nikkei. The stock 
prices used in the calculation of the Nikkei are those reported by a 
primary market for the underlying stocks, which is currently the TSE. 
The level of the Index is calculated once per minute during TSE trading 
hours. The value of the Index is readily accessible by U.S. investors 
at the following Web sites: http://www.nni.nikkei.co.jp and http://www.bloomberg.com. As noted below, because of the time difference 
between Tokyo and New York, the closing level of the Index on a trading 
day will generally be available in the United States by the opening of 
business on the same calendar day.
    In order to maintain continuity in the level of the Nikkei in the 
event of certain changes due to non-market factors affecting the 
underlying stocks, such as the addition or deletion of stocks, 
substitution of stocks, stock dividends, stock splits or distributions 
of assets to stockholders, the divisor used in calculating the Nikkei 
is adjusted in a manner designed to prevent any instantaneous change or 
discontinuity in the level of the Index. The divisor remains at the new 
value until a further adjustment is necessary as the result of another 
change. As a result of each change affecting any Underlying Stock, the 
divisor is adjusted in such a way that the sum of all share prices 
immediately after the change multiplied by the applicable Weight Factor 
and divided by the new divisor, i.e., the level of the Index 
immediately after the change, will equal the level of the Index 
immediately prior to the change.\14\
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    \14\ Underlying stocks of the Nikkei may be deleted or added by 
NKS. However, to maintain continuity in the Index, the policy of NKS 
is generally not to alter the composition of the Underlying Stocks 
except when an Underlying Stock is deleted in accordance with the 
following criteria. Any stock becoming ineligible for listing in the 
First Section of the TSE due to any of the following reasons will be 
deleted from the Underlying Stocks: bankruptcy of the issuer; merger 
of the issuer into, or acquisition of the issuer by, another 
company; delisting of the stock or transfer of the stock to the 
``Seiri-Post'' because of excess debt of the issuer or because of 
any other reason; or transfer of the stock to the Second Section of 
the TSE. Upon deletion of a stock from the Nikkei, NKS will select, 
in accordance with certain criteria established by it, a replacement 
for the deleted underlying stock. In an exceptional case, a newly 
listed stock in the First Section of the TSE that is recognized by 
NKS to be representative of a market may be added to the underlying 
stocks. As a result, an existing underlying stock with low trading 
volume and not representative of a market will be deleted.

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[[Page 29600]]

    As of April 30, 2004, the average daily trading volume for a single 
Nikkei component was approximately 4.8 million shares.\15\ As of the 
same date, the market capitalization of the components ranged from 14.4 
trillion yen to 33.7 billion yen. These figures correspond 
approximately to 130 billion U.S. dollars and 305 million U.S. dollars.
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    \15\ This figure represents the average number of shares traded 
for the past 30 trading days. It is calculated by taking the sum of 
the volumes of the individual Nikkei components for the past 30 
trading days and dividing it by 30.
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    The Nikkei is composed of 225 securities and is broad-based. The 
highest-weighted stock in the Index has the weight of 3.35%; all other 
components have lower weights. The top five stocks in the Nikkei have 
the cumulative weight of approximately 14.3%.
    The ES50 was created and is published by STOXX, a joint venture 
founded by SWX-Swiss Exchange, SBF-Bourse de Paris, Deutsche Borse AG 
and Dow Jones & Company. The companies that are included in the ES50 
are selected by STOXX and are representative of a broad market and a 
wide array of European industries. Publication of the ES50 began on 
February 26, 1998, based on an initial value of the ES50 of 1,000 at 
December 31, 1991. The ES50 is currently calculated by (i) multiplying 
the per share price of each underlying security by the number of 
outstanding shares (and, if the stock is not quoted in euros, then 
multiplied by the country currency and an exchange factor which 
reflects the exchange rate between the country currency and the euro); 
(ii) calculating the sum of all these products (the ``Index Aggregate 
Market Capitalization''); and (iii) dividing the Index Aggregate Market 
Capitalization by a divisor which represents the Index Aggregate Market 
Capitalization on the base date of the ES50 and which can be adjusted 
to allow changes in the issued share capital of individual underlying 
securities, including the deletion and addition of stocks, the 
substitution of stocks, stock dividends and stock splits, to be made 
without distorting the ES50. The value of the ES50 is updated by STOXX 
every 15 seconds when the European markets are open. The 15-second 
value of the ES50 and the identity of the individual ES50 components 
can be accessed from http://www.stoxx.com.
    Moreover, the following stock markets are currently the primary 
listing markets for the ES50 components: Deutsche Borse (21.3% of the 
ES50 weight), Euronext Amsterdam (18.2%),\16\ Borsa Italiana (10.9%), 
Euronext Paris (32.2%), the Spanish Stock Market (13.1%) and HEX 
Helsinki (4%). A number of the ES50 components are traded on more than 
one major European market. In addition, 34 of the 50 ES50 issuers 
currently have sponsored ADRs listed on the New York Stock Exchange, 
and 4 have non-sponsored ADRs trading in the United States.
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    \16\ One of the component stocks with a primary listing in 
Amsterdam maintains a second ``primary listing'' on Euronext 
Brussels. This component comprises approximately 1.6% of the total 
ES50 weight.
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    The composition of the ES50 is reviewed annually, and changes are 
implemented on the third Friday in September, using market data from 
the end of July as the basis for the review process. Changes in the 
composition of the ES50 are made to ensure that the ES50 includes those 
companies that, within the eligible countries and within each industry 
sector, have the greatest market capitalization. Changes in the 
composition of the ES50 are made entirely by STOXX without consultation 
with the corporations represented in the ES50 or with Merrill Lynch. 
The ES50 is also reviewed on an on-going basis, and change in the 
composition of the ES50 may be necessary if there have been 
extraordinary events for one of the issuers of the underlying 
securities, e.g., delisting, bankruptcy, merger or takeover. In these 
cases, the event is taken into account as soon as it is effective. The 
underlying securities may be changed at any time for any reason. 
Neither STOXX nor any of its founders is affiliated with Merrill Lynch 
and neither has participated in any way in the creation of the Notes.
    Merrill Lynch or its affiliates may presently and from time to time 
engage in business with the publishers, owners or creators of the ES50 
or the issuers of the underlying securities, including extending loans 
to, making equity investments in or providing advisory services, 
including merger and acquisition advisory services, to the publishers, 
their successors, founders or creators, or to any of the issuers. 
Merrill Lynch may also act as market maker for the common stock of the 
issuers. A representative of an affiliate of Merrill Lynch may, from 
time to time, be a member of the STOXX Limited Advisory Committee, 
which advises the Supervisory Board on matters related to the ES50, 
including proposing changes in its composition and recommendations with 
respect to the accuracy and transparency of index computation. 
(Decision on the composition of and changes in the ES50 are reserved to 
the Supervisory Board.) At the present time, the Advisory Committee 
does not include any representatives of a Merrill Lynch affiliate.
    As of April 30, 2004, the average daily trading volume for a single 
ES50 component was approximately 14.2 million shares.\17\ As of the 
same date, the market capitalization of the components ranged from 
approximately 100 billion euros to approximately 10 billion euros. 
These figures corresponded approximately to 119.8 billion U.S. dollars 
and 11.98 billion U.S. dollars.
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    \17\ This figure represents the average of the average numbers 
of shares of each ES50 component traded for the past 30 trading 
days. It is calculated by taking the sum of the volumes of the 
individual ES50 components for the past 30 trading days, dividing it 
by the total number of components (50), and then dividing the result 
by 30.
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    The highest-weighted stock in the ES50 has the weight of 
approximately 7.2%; all other components have lower weights. The top 
five stocks in the ES50 have the cumulative weight of approximately 25 
percent.
    In calculating the ES50, STOXX uses a divisor, currently equal to 
500.424521, which represents the Index Aggregate Market Capitalization 
on the base date and which can be adjusted to allow changes in the 
issued share capital of individual underlying securities, including the 
deletion and addition of stocks, the substitution of stocks, stock 
dividends and stock splits, to be made without distorting the ES50.
    Because Merrill Lynch, a broker-dealer, or its affiliate, may 
assist in maintaining the ES50, it is imperative that there be a 
functional separation, such as a firewall, between the trading desk of 
the broker-dealer and the research persons responsible for maintaining 
the ES50.\18\ Merrill Lynch has represented that such a firewall 
exists. Moreover, Merrill Lynch also has represented that it has 
policies that prohibit the distribution of material, non-public 
information by its employees.\19\
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    \18\ See Letter from Satch Chada, Director, Merrill Lynch, to 
Florence Harmon, Senior Special Counsel, Division, Commission, dated 
May 13, 2004.
    \19\ Id.
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    The S&P 500 is published by Standard & Poor's, a division of The 
McGraw-Hill

[[Page 29601]]

Companies, Inc. (``S&P'') and is intended to provide an indication of 
the pattern of common stock price movement. The S&P 500 is a 
capitalization-weighted index, with each stock's weight proportionate 
to its market value. The value of the S&P 500 is based on the relative 
value of the aggregate market value of the common stocks of 500 
companies as of a particular time compared to the aggregate average 
market value of the common stocks of 500 similar companies during the 
base period of the years 1941 through 1943. The market value for the 
common stock of a company is the product of the market price per share 
of the common stock and the number of outstanding shares of common 
stock. As of February 27, 2004, 424 companies or 84.3% of the market 
capitalization of the S&P 500 traded on the NYSE; 74 companies or 15.5% 
of the market capitalization of the S&P 500 traded on The Nasdaq 
National Market; and 2 companies or 0.2% of the market capitalization 
of the S&P 500 traded on the American Stock Exchange LLC (``Amex''). As 
of February 27, 2004, the aggregate market value of the 500 companies 
included in the S&P 500 represented approximately 77% of the aggregate 
market value of stocks included in the S&P Stock Guide Database of 
domestic common stocks traded in the U.S., excluding ADRs, limited 
partnerships and mutual funds. S&P selects companies for inclusion in 
the S&P 500 with the aim of achieving a distribution by broad industry 
groupings that approximates the distribution of these groupings in the 
common stock population of the S&P Stock Guide Database, which S&P uses 
as an assumed model for the composition of the total market. Relevant 
criteria employed by S&P include the viability of the particular 
company, the extent to which that company represents the industry group 
to which it is assigned, the extent to which the market price of that 
company's common stock is generally responsive to changes in the 
affairs of the respective industry and the market value and trading 
activity of the common stock of that company. S&P may from time to 
time, in its sole discretion, add or delete companies to achieve the 
objectives stated above. The value of the S&P 500 is updated every 15 
seconds.
    As of March 30, 2004, the market capitalization of the securities 
included in the S&P 500 ranged from a high of approximately $308 
billion to a low of approximately $931 million. The average daily 
trading volume for the S&P 500 over the previous six months, as of the 
same date, ranged from a high of approximately 28 million shares to a 
low of approximately 129,000 shares.
    Nasdaq represents that NASD's surveillance procedures are adequate 
to properly monitor the trading of the Notes. Specifically, NASD will 
rely on its current surveillance procedures governing equity securities 
and will include additional monitoring on key pricing dates. The NASD 
represents that it is able to adequately surveil the trading activity 
of the underlying indexes to detect and deter manipulation. If 
manipulative activity or other types of trading activity that raise 
regulatory concerns are suspected and involve the Nikkei 225 component 
stocks, the NASD will rely on the Intermarket Surveillance Group 
(``ISG'') Agreement to obtain the needed information from the TSE. This 
Agreement obligates the NASD and the TSE to compile and transmit market 
surveillance information and resolve in good faith any disagreements 
regarding requests for information or responses thereto. Also, if it 
ever became necessary (for example, if, hypothetically, the TSE 
withdrew from the ISG), NASD would seek the Commission's assistance 
pursuant to memoranda of understanding or similar inter-governmental 
agreements or arrangements that may exist between the Commission and 
the Japanese securities regulators.\20\
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    \20\ Telephone conversation between Alex Kogan, Associate 
General Counsel, Nasdaq, and Florence Harmon, Senior Special 
Counsel, Division, Commission, dated May 7, 2004.
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    If manipulative activity or other types of trading activity that 
raise regulatory concerns are suspected and involve ES50 component 
stocks, then, in order to obtain the needed information, the NASD will 
also rely on the ISG Agreement to which the NASD and some of the ES50 
markets are parties, on the memoranda of understanding (``MOUs'') 
between the Commission and the relevant foreign regulators, and on 
information available domestically with respect to those issuers that 
list sponsored ADRs in the United States (the ISG Agreement, the MOUs 
and the sponsored ADRs are together referred to as the 
``Arrangements''). At present, in excess of 90% of the capitalization 
of the ES50 is subject to the Arrangements.\21\
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    \21\ Nasdaq represents that there is only one foreign stock 
exchange, HEX Helsinki, currently represented in the ES50 that is 
not subject either to the ISG Agreement with the NASD or to an MOU 
with the Commission. There is one ES50 stock that is currently 
listed on that exchange. This stock, Nokia, represents approximately 
4 percent of the weight of the ES50, and has a sponsored ADR listed 
on the NYSE. Telephone conversation between Alex Kogan, Associate 
General Counsel, Nasdaq, and Hong-anh Tran, Special Counsel, 
Division, Commission, dated May 13, 2004.
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    Nasdaq will contact Commission staff regarding continued listing of 
the Notes linked to the Basket if: (i) The component securities 
representing more than 50% of the capitalization of the Basket are not 
subject to the Information Sharing Agreements (``ISAs'') with the NASD; 
or (ii) the components of the Basket representing more than 20% of the 
capitalization of the Basket and maintaining their primary listing on 
the same market are not subject to the ISAs with the NASD and the MOUs; 
or (iii) the components of the Basket representing more than 33\1/3\ % 
of the capitalization of the Basket and maintaining their primary 
listing on one of the same two markets are not subject to the ISAs with 
the NASD.\22\
---------------------------------------------------------------------------

    \22\ Telephone conversation between Alex Kogan, Associate 
General Counsel, Nasdaq, and Hong-anh Tran, Special Counsel, 
Division, Commission, dated May 13, 2004.
---------------------------------------------------------------------------

    Since the Notes will be deemed equity securities for the purpose of 
NASD Rule 4420(f), the NASD and Nasdaq's existing equity trading rules 
will apply to the Notes. First, pursuant to NASD Rule 2310 and IM-2310-
2, members must have reasonable grounds for believing that a 
recommendation to a customer regarding the purchase, sale or exchange 
of any security is suitable for such customer upon the basis of the 
facts, if any, disclosed by such customer as to his other security 
holdings and as to his financial situation and needs.\23\ In addition, 
as previously described, Nasdaq will distribute a circular to members 
providing guidance regarding compliance responsibilities and 
requirements, including suitability of recommendations, and 
highlighting the special risks and characteristics of the Notes. 
Furthermore, the Notes will be subject to the equity margin rules. 
Lastly, the regular equity trading hours of 9:30 a.m. to 4 p.m. will 
apply to transactions in the Notes.
---------------------------------------------------------------------------

    \23\ Rule 2310(b) requires members to make reasonable efforts to 
obtain information concerning a customer's financial status, a 
customer's tax status, the customer's investment objectives, and 
such other information used or considered to be reasonable by such 
member or registered representative in making recommendations to the 
customer.
---------------------------------------------------------------------------

    The providers of the indexes included in the Basket are not 
obligated to continue the calculation and dissemination of these 
indexes. In the event the calculation and dissemination of any of the 
three underlying indexes is discontinued, Nasdaq will consult with the 
Commission and will consider prohibiting the continued listing of the 
Notes.

[[Page 29602]]

    Pursuant to Rule 10A-3 of the Act \24\ and Section 3 of the 
Sarbanes-Oxley Act of 2002,\25\ Nasdaq will prohibit the initial or 
continued listing of any security of an issuer that is not in 
compliance with the requirements set forth therein.
---------------------------------------------------------------------------

    \24\ 17 CFR 240.10A-3.
    \25\ See Section 3 of Pub. L. 107-204, 116 Stat. 745 (2002).
---------------------------------------------------------------------------

    Merrill Lynch will deliver a prospectus in connection with the 
initial purchase of the Notes. The procedure for the delivery of a 
prospectus will be the same as Merrill Lynch's current procedure 
involving primary offerings.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\26\ in general, and with 
Section 15A(b)(6) of the Act,\27\ in particular, in that the proposal 
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. Specifically, 
the proposed rule change will provide investors with an investment 
vehicle based on the Basket.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78o-3.
    \27\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    Written comments were neither solicited nor received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File No. SR-NASD-2004-061 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-NASD-2004-061. 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 the 
filing also will be available for inspection and copying at the 
principal office of the NASD. 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-NASD-2004-061 and should be submitted by June 14, 2004.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    Nasdaq requests that the Commission approve this filing on an 
accelerated basis since it raises no new or novel issues and will 
enable Nasdaq to accommodate the timetable of listing the Notes. In 
this regard, Nasdaq notes, and the Commission concurs, that the 
Commission has previously approved the listing of options on, and/or 
securities the performance of which has been linked to or based on the 
Nikkei,\28\ the ES50,\29\ and the S&P 500.\30\ The Commission has also 
previously approved the listing of securities with a structure that is 
the same or substantially the same as that of the Notes.\31\
---------------------------------------------------------------------------

    \28\ See Securities Exchange Act Release No. 38940 (August 15, 
1997), 62 FR 44735 (August 22, 1997) (approving the listing and 
trading of Market Index Target-Term Securities, the return on which 
is based on changes in the value of a portfolio of 11 foreign 
indexes, including Nikkei).
    \29\ See Securities Exchange Act Release Nos. 40303 (August 4, 
1998), 63 FR 42892 (August 11, 1998) (approving listing of BRoad 
InDex Guarded Equity-linked Securities linked to the value of the 
ES50); and 46021 (June 3, 2002), 67 FR 39753 (June 10, 2002) 
(approving listing of notes based on the Dow Jones EURO STOXX 50 
Return Index, which is based on the ES50).
    \30\ See Securities Exchange Act Release Nos. 48677 (October 21, 
2003), 68 FR 61524 (October 28, 2003) (approving the listing and 
trading of Accelerated Return Notes linked to the S&P 500); 47464 
(March 7, 2003), 68 FR 12116 (March 13, 2003) (approving the listing 
and trading of Market Recovery Notes Linked to the S&P 500); 30394 
(February 21, 1992), 57 FR 7409 (March 2, 1992) (approving the 
listing and trading of a unit investment trust linked to the S&P 
500); 27382 (October 26, 1989), 54 FR 45834 (October 31, 1989) 
(approving the listing and trading of Exchange Stock Portfolios 
based on the value of the S&P 500); 31591 (December 11, 1992), 57 FR 
60253 (December 18, 1992) (approving the listing and trading of 
Portfolio Depositary Receipts based on the S&P 500); and 19907 (June 
24, 1983), 48 FR 30814 (July 5, 1983) (approving the listing and 
trading of options on the S&P 500).
    \31\ See Securities Exchange Act Release Nos. 49301 (Feb. 23, 
2004), 69 FR 9665 (March 1, 2004) (approving the listing and trading 
of 97% protected notes linked to the Dow Jones Industrial Average); 
48152 (July 10, 2003), 68 FR 42435 (July 17, 2003) (approving the 
listing and trading of partial principal protected notes linked to 
the S&P 500); and 48486 (Sept. 11, 2003), 68 FR 54758 (Sept. 18, 
2003) (approving the listing and trading of contingent principal 
protection notes linked to the S&P 500).
---------------------------------------------------------------------------

    After careful consideration, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and the rules and regulations thereunder, applicable to a national 
securities association, and, in particular, with the requirements of 
Section 15A(b)(6) of the Act \32\ in that it is designed 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.\33\ The Commission believes 
that the Notes will provide investors with a means of participating in 
the market for foreign securities. In particular, the Commission 
believes that the Notes will permit investors to obtain returns based 
on the S&P 500 as well as returns based on the component foreign 
markets while at the same time limiting the downside risk of the 
original investment as a result of the principal guarantee. The Notes 
are securities that entitle the holder to receive from the issuer upon 
maturity a pre-established

[[Page 29603]]

percentage of the principal amount of the Notes plus an amount based 
upon the increase in the market value of the Basket, if any. 
Specifically, the Commission notes that the Notes provide for the 
return of at least 97% of the principal amount per Unit. As described 
more fully above, if the value of the Basket decreases or does not 
increase sufficiently, a beneficial owner will be entitled to less than 
the principal amount of $10 per Unit. However, in no event will a 
beneficial owner be entitled to less than the Minimum Redemption 
Amount.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78o-3(b)(6).
    \33\ In approving the proposed rule, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Notes are a series of senior non-convertible debt securities 
whose price will be based on the value of the Basket. The Notes do not 
guarantee that the total amount at maturity will be equal to the 
principal amount. Thus, if the Basket has declined at maturity, a 
beneficial owner may receive 3% less than the original public offering 
price of the Notes. Because the final rate of return on the Notes is 
derivatively priced and based upon the performance of the value of 
three different indexes, two of which are foreign indexes, comprising 
the Basket, and because the Participation Rate limits investors' 
potential return, there are several issues regarding the trading of 
this type of product. For the reasons discussed below, the Commission 
believes that Nasdaq's proposal adequately addresses the concerns 
raised by this type of product.
    First, the Commission notes that the protections of NASD Rule 
4420(f) were designed to address the concerns attendant to the trading 
of hybrid securities like the Notes.\34\ In particular, by imposing the 
hybrid listing standards, heightened suitability for 
recommendations,\35\ and compliance requirements, noted above, the 
Commission believes that Nasdaq has adequately addressed the potential 
problems that could arise from the hybrid nature of the Notes. The 
Commission notes that Nasdaq will distribute a circular to its 
membership that provides guidance regarding member firm compliance 
responsibilities and requirements, including suitability 
recommendations, and highlights the special risks and characteristics 
associated with the Notes. Specifically, among other things, the 
circular will indicate that the Notes do not guarantee a total return 
of principal at maturity, that the Participation Rate on the Notes is 
expected to be between 100% and 105% per Unit,\36\ that the Notes will 
not pay interest, and that the Notes will provide exposure in the 
indexes comprising the Basket. Distribution of the circular should help 
to ensure that only customers with an understanding of the risks 
attendant to the trading of the Notes and who are able to bear the 
financial risks associated with transactions in the Notes will trade 
the Notes. In addition, the Commission notes that Merrill Lynch will 
deliver a prospectus in connection with the initial purchase of the 
Notes.
---------------------------------------------------------------------------

    \34\ See 1993 Order, supra note 4.
    \35\ As discussed above, Nasdaq will advise members recommending 
a transaction in the Notes to: (1) determine that the transaction is 
suitable for the customer; and (2) have a reasonable basis for 
believing that the customer can evaluate the special characteristics 
of, and is able to bear the financial risks of, the transaction.
    \36\ The Commission notes that the actual Participation Rate on 
the day the Notes are priced for initial sale to the public will be 
disclosed in the final prospectus supplement.
---------------------------------------------------------------------------

    Second, the Commission notes that the final rate of return on the 
Notes depends, in part, upon the individual credit of the issuer, 
Merrill Lynch. To some extent this credit risk is minimized by the 
NASD's listing standards in NASD Rule 4420(f), which provide that only 
issuers satisfying substantial asset and equity requirements may issue 
these types of hybrid securities. In addition, the NASD's hybrid 
listing standards further require that the Notes have at least $4 
million in market value. Financial information regarding Merrill Lynch, 
in addition to information concerning the issuers, in addition to 
information on the underlying indexes, will be publicly available.
    Third, the Notes will be registered under Section 12 of the Act. As 
noted above, the NASD's and Nasdaq's existing equity trading rules will 
apply to the Notes, which will be subject to equity margin rules and 
will trade during the regular equity trading hours of 9:30 a.m. to 4 
p.m. NASD Regulation's surveillance procedures for the Notes will be 
the same as its current surveillance procedures for equity securities, 
and will include additional monitoring on key pricing dates.
    Fourth, the Commission has a systemic concern that a broker-dealer, 
such as Merrill Lynch, or a subsidiary providing a hedge for the issuer 
will incur position exposure. However, as the Commission has concluded 
in previous approval orders for the hybrid instruments issued by 
broker-dealers,\37\ the Commission believes that this concern is 
minimal given the size of the Notes issuance in relation to the net 
worth of Merrill Lynch.
---------------------------------------------------------------------------

    \37\ See, e.g., Securities Exchange Act Release Nos. 44913 
(October 9, 2001), 66 FR 52469 (October 15, 2001) (order approving 
File No. SR-NASD-2001-73) (approving the listing and trading of 
notes issued by Morgan Stanley Dean Witter & Co. whose return is 
based on the performance of the Index); 44483 (June 27, 2001), 66 FR 
35677 (July 6, 2001) (order approving File No. SR-Amex-2001-40) 
(approving the listing and trading of notes issued by Merrill Lynch 
whose return is based on a portfolio of 20 securities selected from 
the Amex Institutional Index); and 37744 (September 27, 1996), 61 FR 
52480 (October 7, 1996) (order approving File No. SR-Amex-96-27) 
(approving the listing and trading of notes issued by Merrill Lynch 
whose return is based on a weighted portfolio of healthcare/
biotechnology industry securities).
---------------------------------------------------------------------------

    Fifth, the Commission believes that the listing and trading of the 
Notes should not unduly impact the market for the securities underlying 
the Basket or raise manipulative concerns. In approving the Notes, the 
Commission recognizes that the Basket measures the value of the equity 
securities of companies listed on various U.S. (i.e., the S&P 500), 
European (i.e., the ES50), and Asian (i.e., the Nikkei) exchanges. In 
particular, the Commission notes that the S&P 500 is a capitalization-
weighted index of 500 companies listed on Nasdaq, the NYSE and the 
Amex. The Commission notes that the S&P 500 is determined, composed, 
and calculated by S&P. As of March 30, 2004, the market capitalization 
of the securities included in the S&P 500 ranged from a high of 
approximately $308 billion to a low of approximately $931 million. The 
average daily trading volume for the S&P 500 over the previous six 
months, as of the same date, ranged from a high of approximately 28 
million shares to a low of approximately 129,000 shares. As of February 
27, 2004, the aggregate market value of the 500 companies included in 
the S&P 500 represented approximately 77% of the aggregate market value 
of stocks included in the S&P Stock Guide Database of domestic common 
stocks traded in the U.S., excluding ADRs, limited partnerships and 
mutual funds. S&P chooses companies for inclusion in the Index with the 
aim of achieving a distribution by broad industry groupings that 
approximates the distribution of these groupings in the common stock 
population of the S&P's Stock Guide Database.
    Further, the ES50, a market-capitalization weighted index, was 
created and is published by STOXX, a joint venture founded by SWX-Swiss 
Exchange, SBF-Bourse de Paris, Deutsche Borse AG and Dow Jones & 
Company. The following stock markets are currently the primary listing 
markets for the ES50 components: Deutsche Borse (21.3% of the ES50 
weight),

[[Page 29604]]

Euronext Amsterdam (18.2%),\38\ Borsa Italiana (10.9%), Euronext Paris 
(32.2%), the Spanish Stock Market (13.1%) and HEX Helsinki (4%). In 
addition, Nasdaq represents that a number of the ES50 components are 
traded on more than one major European market. In addition, 34 of the 
50 ES50 issuers currently have sponsored ADRs listed on the NYSE, and 4 
have non-sponsored ADRs trading in the United States. Thus, the 
Commission notes that the companies that are included in the ES50 are 
representative of a broad market and a wide array of European 
industries. As of April 30, 2004, the average daily trading volume for 
a single ES50 component was approximately 14.2 million shares.\39\ As 
of the same date, the market capitalization of the components ranged 
from approximately 100 billion euros to approximately 10 billion euros. 
These figures corresponded approximately to 119.8 billion U.S. dollars 
and 11.98 billion U.S. dollars.
---------------------------------------------------------------------------

    \38\ One of the component stocks with a primary listing in 
Amsterdam maintains a second ``primary listing'' on Euronext 
Brussels. This component comprises approximately 1.6% of the total 
ES50 weight.
    \39\ This figure represents the average of the average number of 
shares of each ES50 component traded for the past 30 trading days. 
It is calculated by taking the sum of the volumes of the individual 
ES50 components for the past 30 trading days, dividing it by the 
total number of components (50), and then dividing the result by 30.
---------------------------------------------------------------------------

    Moreover, the Commission notes that the Nikkei, a modified, price-
weighted index, measures the composite price performance of 225 
underlying common stocks traded on the TSE, and represents a broad 
cross-section of Japanese industry. All 225 underlying stocks are 
listed in the First Section of the TSE and are, therefore, among the 
most actively traded stocks on the TSE. As of April 30, 2004, the 
average daily trading volume for a single Nikkei component was 
approximately 4.8 million shares.\40\ As of the same date, the market 
capitalization of the components ranged from 14.4 trillion yen to 33.7 
billion yen. These figures correspond approximately to 130 billion U.S. 
dollars and 305 million U.S. dollars.
---------------------------------------------------------------------------

    \40\ This figure represents the average number of shares traded 
for the past 30 trading days. It is calculated by taking the sum of 
the volumes of the individual Nikkei components for the past 30 
trading days and dividing it by 30.
---------------------------------------------------------------------------

    Given that all three indexes comprising the Basket are highly-
capitalized and contain diversified securities listed on various U.S., 
European, and Asian exchanges, the Commission believes that the listing 
and trading of the Notes that are linked to the Basket should not 
unduly impact the market for the securities underlying the three 
indexes comprising the Basket or raise manipulative concerns. The 
Commission notes that all of the indexes underlying the Basket are 
established indexes. However, in light of the fact that the Nikkei and 
the ES50 are foreign indexes, the Commission believes adequate 
information sharing agreements with foreign regulators are a necessary 
prerequisite to deter as well as detect any potential manipulation or 
other improper or illegal trading involving the Notes. While many of 
the issuers of the underlying securities comprising the Nikkei 225 are 
not subject to reporting requirements under the Act, Nasdaq represents 
that an adequate surveillance sharing agreement exists through the ISG 
between the NASD and the TSE to deter and detect potential 
manipulations or other improper trading in the underlying components. 
Therefore, Nasdaq's surveillance procedures will serve to deter as well 
as detect any potential manipulation. This agreement obligates the NASD 
and TSE to compile and transmit market surveillance information and 
resolve in good faith any disagreements regarding requests for 
information. Accordingly, the Commission believes that the surveillance 
sharing agreement through ISG is adequate for the NASD to surveil the 
components of the Nikkei 225 for potential manipulation or other 
trading abuses between the markets with respect to the trading of the 
Notes based on the Nikkei 225. Nasdaq further represents that it will 
rely on the ISG Agreement to which the NASD and some of the ES50 
markets are parties, on the MOUs between the Commission and the 
relevant foreign regulators, and on information available domestically 
with respect to those issuers that list sponsored ADRs in the United 
States (the ISG Agreement, the MOUs and the sponsored ADRs are together 
referred to as the ``Arrangements''). At present, Nasdaq represents 
that in excess of 90% of the capitalization of the ES50 is subject to 
the Arrangements. In addition, if the surveillance coverage for the 
ES50 falls below certain levels, as discussed above, Nasdaq will 
contact the Commission staff regarding continued listing of the Notes 
linked to the Basket. This should help to ensure that adequate 
surveillance mechanisms exist in the future.
    Finally, the Commission notes that the values of the Nikkei, the 
ES50, and the S&P 500 indexes will be disseminated at least once every 
minute for the Nikkei, and once every 15 seconds for the ES50 when the 
European markets are open and the S&P 500 throughout the trading day. 
The Commission believes that providing real time access to the value of 
these indexes throughout the trading day is sufficient and will provide 
benefits to investors in the Notes.
    The Commission finds good cause for approving the proposed rule 
change, as amended, prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register. The 
Commission believes that the Notes will provide investors with an 
additional investment choice and that accelerated approval of the 
proposal will allow investors to begin trading the Notes promptly. In 
addition, the Commission notes that it has previously approved the 
listing of options on, and/or securities the performance of which has 
been linked to or based on the Nikkei,\41\ the ES50,\42\ and the S&P 
500.\43\ The Commission has also previously approved the listing of 
securities with a structure that is the same or substantially the same 
as that of the Notes.\44\
---------------------------------------------------------------------------

    \41\ See Securities Exchange Act Release No. 38940 (August 15, 
1997), 62 FR 44735 (August 22, 1997) (approving the listing and 
trading of Market Index Target-Term Securities, the return on which 
is based on changes in the value of a portfolio of 11 foreign 
indexes, including Nikkei).
    \42\ See Securities Exchange Act Release Nos. 40303 (August 4, 
1998), 63 FR 42892 (August 11, 1998) (approving listing of BRoad 
InDex Guarded Equity-linked Securities linked to the value of the 
ES50); and 46021 (June 3, 2002), 67 FR 39753 (June 10, 2002) 
(approving listing of notes based on the Dow Jones EURO STOXX 50 
Return Index, which is based on the ES50).
    \43\ See Securities Exchange Act Release Nos. 48677 (October 21, 
2003), 68 FR 61524 (October 28, 2003) (approving the listing and 
trading of Accelerated Return Notes linked to the S&P 500); 47464 
(March 7, 2003), 68 FR 12116 (March 13, 2003) (approving the listing 
and trading of Market Recovery Notes Linked to the S&P 500); 30394 
(February 21, 1992), 57 FR 7409 (March 2, 1992) (approving the 
listing and trading of a unit investment trust linked to the S&P 
500); 27382 (October 26, 1989), 54 FR 45834 (October 31, 1989) 
(approving the listing and trading of Exchange Stock Portfolios 
based on the value of the S&P 500); 31591 (December 11, 1992), 57 FR 
60253 (December 18, 1992) (approving the listing and trading of 
Portfolio Depositary Receipts based on the S&P 500); and 19907 (June 
24, 1983), 48 FR 30814 (July 5, 1983) (approving the listing and 
trading of options on the S&P 500).
    \44\ See Securities Exchange Act Release Nos. 49301 (Feb. 23, 
2004), 69 FR 9665 (March 1, 2004) (approving the listing and trading 
of 97% protected notes linked to the Dow Jones Industrial Average); 
48152 (July 10, 2003), 68 FR 42435 (July 17, 2003) (approving the 
listing and trading of partial principal protected notes linked to 
the S&P 500); and 48486 (Sept. 11, 2003), 68 FR 54758 (Sept. 18, 
2003) (approving the listing and trading of contingent principal 
protection notes linked to the S&P 500).
---------------------------------------------------------------------------

    Thus, the Commission believes that the proposal does not raise any 
new regulatory issues. Accordingly, the Commission believes that there 
is good cause, consistent with Sections

[[Page 29605]]

15A(b)(6) and 19(b)(2) of the Act,\45\ to approve the proposal, on an 
accelerated basis.
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78o-3(b)(6) and 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\46\ that the proposed rule change (SR-NASD-2004-061) is hereby 
approved on an accelerated basis.
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\47\
---------------------------------------------------------------------------

    \47\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-11650 Filed 5-21-04; 8:45 am]
BILLING CODE 8010-01-P