[Federal Register Volume 69, Number 228 (Monday, November 29, 2004)]
[Notices]
[Pages 69435-69440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-26304]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50710, File No. SR-NASD-2004-157]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by National 
Association of Securities Dealers, Inc. Relating to the Listing and 
Trading of Performance Leveraged Upside Securities Linked to the 
Russell 2000 Index

November 19, 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 October 21, 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'') the proposed rule change as described in 
Items I and II

[[Page 69436]]

below, which Items have been prepared by Nasdaq. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
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\ CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to list and trade Performance Leveraged Upside 
SecuritiesSM (``PLUS''), the return on which is based upon 
the Russell 2000 Index (``Notes'') issued by Morgan Stanley.

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, 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 proposed to list and trade the PLUS which provide for a 
return based upon the Russell 2000 Index (the ``Index'').
Index
    The Index is a capitalization-weighted index maintained by Frank 
Russell company (``FRC'').\3\ It is designed to track the performance 
of 2,000 common stocks of corporations with small market 
capitalizations relative to other stocks in the U.S. equity market. The 
companies represented in the Index are domiciled in the U.S. and its 
territories and cover a wide range of industry groups. All 2,000 stocks 
are traded on the New York Stock Exchange, the American Stock Exchange, 
or Nasdaq and form a part of the Russell 3000 Index. The Russell 3000 
Index is composed of the 3,000 largest U.S. companies, based on market 
capitalization, and represents approximately 98% of the U.S. equity 
market.
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    \3\ For additional information regarding the Index see http://www.russell.com.
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    The Index measures the price performance of the shares of common 
stock of the smallest 2,000 companies included in the Russell 3000 
Index, which represent approximately 8% of the total market 
capitalization of the Russell 3000 Index as of August 31, 2004.\4\ The 
Index is designed to track the performance of the small capitalization 
segment of the U.S. equity market. The Index is defined, assembled and 
calculated by FRC without regard to the Notes.
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    \4\ As of August 31, 2004, the total market capitalization of 
the Index was $953.34 billion.
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    Only companies domiciled in the U.S. and its territories are 
eligible for inclusion in the Index. Companies domiciled in other 
countries are excluded, even if their common stock shares are traded on 
U.S. markets. Preferred stock, convertible preferred stock, 
participating preferred stock, paired shares, warrants, and rights are 
also excluded. Trust receipts, Royalty Trusts, limited liability 
companies, OTC Bulletin Board and Pink Sheets' quoted stock, closed-end 
mutual funds, and limited partnerships that are traded on U.S. 
exchanges, are also ineligible for inclusion. Real Estate Investment 
Trusts and Beneficial Trusts are eligible for inclusion, however. In 
general, only one class of securities of a company is allowed in the 
Russell 3000 Index, although exceptions to this general rule have been 
made where FRC has determined that each class of securities acts 
independent of the other.
    The primary criteria used to determine the initial list of 
securities eligible for the Russell 3000 Index is total market 
capitalization, which is defined as the price of the shares times the 
total number of shares outstanding. Based on closing values on May 31 
of each year, FRC reconstitutes the composition of the Russell 3000 
Index using the then existing market capitalizations of eligible 
companies to reflect changes in capitalization rankings and shares 
available. If a stock ceases to trade as a result of a merger or 
acquisition during the year, the stock is deleted from the Index and 
will be replaced during the subsequent annual recapitalization. No 
interim replacements will be made. As of June 30 of each year, the 
Index is adjusted to reflect the reconstitution of the Russell 3000 
Index for that year.
    As of September 30, 2004, the market capitalization of the Index 
components ranged from approximately $68 million to approximately 
$2.353 billion. As of the same date, the Index's highest weighted 
component stock constituted approximately 0.213% of the Index's market 
capitalization, and the top five component stock constituted 
approximately 0.9968% of the Index's market capitalization. For a 30-
day period prior to August 19, 2004, the average daily trading volume 
of the average of all of the Index's components was approximately 
195,000 shares.\5\
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    \5\ Telephone conference between Alex Kogan, Associate General 
Counsel, Nasdaq, and Florence Harmon, Senior Special Counsel, 
Division of Market Regulation, (``Division''), Commission, dated 
November 16, 2004.
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    As a capitalization-weighted index, the Index reflects changes in 
the capitalization, or market value, of the component stocks relative 
to the capitalization on a base date. The current index value is 
calculated by adding the market values of the Index's component stocks, 
which are derived by multiplying the price of each stock by the number 
of shares outstanding, to arrive at the total market capitalization of 
the 2,000 stocks. The total market capitalization is then divided by a 
divisor, which represents the ``adjusted'' capitalization of the Index 
on the base date of December 31, 1986. To calculate the Index, last 
sale prices are used for exchanged-traded and Nasdaq stocks. If a 
component stock is not open for trading, the most recently traded price 
for that security is used in calculating the Index. In order to provide 
continuity for the Index's value, the divisor is adjusted periodically 
to reflect events including changes in the number of common shares 
outstanding for component stocks, company additions or deletions, 
corporate restructurings and other capitalization changes.
    The Index value is widely disseminated throughout the trading day 
because complete, ``real time'' dissemination of the Index value 
updated at least every 15 seconds, is available from sources 
independent of the issuer and Nasdaq, such as numerous vendors, 
including Bloomberg and Rueters. The value of the Index on a delayed 
basis can be accessed by individual investors at http://
finance.yahoo.com/q?s=[caret]RUT&d=t. The last sale information for the 
Notes is disseminated on a real time basis on Tape C and a variety of 
other sources.\6\ In the event that the calculation and dissemination 
of the Index from an independent third-party source is discontinued, 
Nasdaq states that it will delist the Notes.\7\
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    \6\ November 16, 2004 telephone conference between Alex Kogan, 
Associate General Counsel, Nasdaq, and Florence Harmon, Senior 
Special Counsel, Division, Commission.
    \7\ November 16, 2004 telephone conference between Alex Kogan, 
Associate General Counsel, Nasdaq, and Florence Harmon, Senior 
Special Counsel, Division, Commission.

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[[Page 69437]]

Other Information
    Under Rule 4420(f), Nasdaq may approve for listing and trading 
innovative securities that cannot be readily categorized under 
traditional listing guidelines.\8\ Nasdaq proposes to list and trade 
notes based on the Index under Rule 4420(f).
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    \8\ See Securities Exchange Act Release No. 32988 (September 29, 
1993), 58 FR 52124 (October 6, 1993) (SR-NASD-93-15).
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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 Rule 4420(f). Specifically, under Rule 4420(f)(1):
    (A) The issuer shall have assets in excess of $100 million and
    (B) stockholders' equity of at least $10 million.\9\ In the case of 
an issuer which is unable to satisfy the income criteria set forth in 
Rule 4420(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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    \9\ Morgan Stanley satisfies this listing criterion.
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    (C) 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;
    (D) For equity securities designated pursuant to this paragraph, 
there must be a minimum public distribution of 1,000,000 trading units;
    (E) The aggregate market value/principal amount of the security 
will be at least $4 million.
    In addition, Morgan Stanley satisfies the listed marketplace 
requirement set forth in Rule 4420(f)(2).\10\ Lastly, pursuant to 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 advice members recommending a 
transaction in the Notes to: (1) Determine that such 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, such transaction. In 
addition, pursuant to NASD Rule 2310(b), before executing 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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    \10\ NASD Rule 4420(f)(2) requires issuers of securities 
designated pursuant to this paragraph to be listed on The Nasdaq 
National Market or the New York Stock Exchange (``NYSE'') or be an 
affiliate of a company listed on The Nasdaq National Market or the 
NYSE; provided, however, that the provisions of 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, which is a continued listing 
requirement under Rule 4310(c)(1). The Notes will be subject to the 
NASD's existing trading halt rules. Nasdaq represents that it will 
consider prohibiting the continued listing of the Notes if Morgan 
Stanley is not able to meet its obligations on the Notes.
Description of the Notes
    The Notes are a series of medium-term, senior non-convertible debt 
securities that will be issued by Morgan Stanley. The original public 
offering price of the Notes will be $10 per PLUS. The Notes will not 
pay interest and are not subject to redemption by Morgan Stanley or at 
the option of any beneficial owner before maturity (approximately 1.25 
years from the pricing date).
    At maturity, if the value of the Index has increased, a beneficial 
owner will be entitled to receive a payment on the Notes based on 300% 
the amount of that percentage increase, subject to a maximum total 
payment at maturity that is expected to be between $11.35 and $11.65 
per Note (the ``Maximum Payment at Maturity'').\11\ Thus, the Notes 
provide investors the opportunity to obtain leveraged returns based on 
the Index subject to a cap that is expected to represent an 
appreciation of 11.5% to 16.5% over the original issue price of the 
Notes. However, the Notes are not leveraged on the downside; rather, 
the value of the Notes declines on a one-to-one basis with the Index. 
Unlike ordinary debt securities, the Notes do not guarantee any return 
of principal at maturity. Therefore, if the value of the Index has 
declined from the time of pricing to the time of maturity, a beneficial 
owner will receive less, and possibly significantly less, than the 
original issue price of $10 per PLUS.
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    \11\ The actual Maximum Payment at Maturity will be determined 
at the time of pricing of the Notes.
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    The payment that a beneficial owner will be entitled to receive at 
maturity depends entirely on the relation of the value of the Index 
generally on the second trading day prior to the date when the Notes 
are due (the ``Final Index Value'') and the value of the Index on the 
day they are priced for initial sale to the public (the ``Initial Index 
Value''). If the Final Index Value is greater than the Initial Index 
Value, the payment at maturity per PLUS will equal the lesser of (a) 
$10 plus the Leveraged Upside Payment \12\ and (b) the Maximum Payment 
at Maturity. If the Final Index Value is less than or equal to the 
Initial Index Value, the payment at maturity per PLUS will equal $10 
times the Index Performance Factor.\13\
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    \12\ The Leveraged Upside Payment is the product of (i) $10 and 
(ii) 300% and (iii) the Index Percent Increase (a fraction, the 
numerator of which is the Final Index Value minus the Initial Index 
Value and the denominator of which is the Initial Index Value).
    \13\ The Index Performance Factor is a fraction, the numerator 
of which is the Final Index Value and the denominator of which is 
the Initial Index Value.
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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 Index. The Commission has previously approved 
the listing of options on, and other securities the performance of 
which have been linked to or based on, the Index and to other Russell 
indexes.\14\
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    \14\ See Securities Exchange Act Release No. 31382 (October 30, 
1992), 57 FR 52802 (November 5, 1992) (SR-CBOE-92-02) (approving the 
listing and trading of options on the Index); Securities Exchange 
Act Release No. 49388 (March 10, 2004), 69 FR 12720 (March 17, 2004) 
(SR-CBOE-2003-51) (approving the listing and trading of options on 3 
Russell indexes; order contains the list of 12 additional Russell 
indexes that were approved by the Commission at various times in the 
past for option listing and trading).
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    Since the Notes will be deemed equity securities for the purpose of 
Rule 4420(f), the NASD and Nasdaq's existing equity trading rules will 
apply to the Notes. First, pursuant to 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.\15\ In

[[Page 69438]]

addition, as previously described, 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. 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.
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    \15\ As stated, prior to the execution of a transaction in the 
Notes that has been recommended to a non-institutional customer, 
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.
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    Nasdaq represents that NASD Regulation's surveillance procedures 
are adequate to properly monitor the trading of the Notes. 
Specifically, NASD Regulation will rely on its current surveillance 
procedures governing equity securities and will include additional 
monitoring on key pricing dates.
    Pursuant to Securities Exchange Act Rule 10A-3, 17 CFR 240.10A-3 
and Section 3 of the Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 
116 Stat. 745 (2002), 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.
    Morgan Stanley 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 Morgan Stanley'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,\16\ in general, and with 
Section 15A(b)(6) \17\ of the Act, 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 another investment 
vehicle based on the Index.
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    \16\ 15 U.S.C. 78o-3.
    \17\ 15 U.S.c. 78o3(b)(6).
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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, as amended.

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 Number SR-NASD-2004-157 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-2004-157. 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 Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such 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-2004-157 and 
should be submitted on or before December 20, 2004.

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

    Nasdaq has asked the Commission to approve the proposal on an 
accelerated basis to accommodate the timetable for listing the Notes. 
After careful consideration, 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 
association, and, in particular, with the requirements of Section 
15A(b)(6) of the Act,\18\ which requires in part that the rules be 
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.\19\
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    \18\ 15 U.S.C. 78o-3(b)(6).
    \19\ 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).
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    The Notes are medium-term, senior non-convertible debt securities 
the return on which is based on the Index. The Notes, however, will not 
pay interest and are not subject to redemption by Morgan Stanley or at 
the option of any beneficial owner before maturity (approximately 1.25 
years from the pricing date). Unlike ordinary debt securities, the 
Notes do not guarantee any return of principal at maturity. Therefore, 
if the value of the Index has declined from the time of pricing to the 
time of maturity, a beneficial owner will receive less, and possibly 
significantly less, than the original issue price of $10 per PLUS. The 
Commission believes that the Notes provide investors with the 
opportunity to obtain upside leveraged returns based on the Index 
subject to a cap that is expected to represent an appreciation of 13.5% 
to 16.5% over the original issue price of the Notes. The Commission 
notes that the return of the Notes, if the Index declines, is not 
leveraged.
    The Commission notes that issues are raised by the fact that the 
Notes are debt securities that do not guarantee a return of principal, 
that return on the Notes is limited by the Maximum Payment at maturity, 
and that the Final Index Value is derivatively priced and based on the 
performance value of an index of securities. As set forth below, the 
Commission believes that these concerns are adequately addressed by 
Nasdaq's proposals.

[[Page 69439]]

    First, the Commission notes that NASD Rule 4420(f) addresses the 
concerns stemming from the trading of hybrid securities such as the 
Notes. The Commission believes that the hybrid listing standards, 
suitability for recommendations standards \20\ and compliance 
requirements will enable Nasdaq to address the potential problems that 
could arise from the hybrid nature of the Notes. The Commission notes 
that pursuant to Rule 4420(f)(3), prior to the commencement of trading 
on 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. Specifically, among other 
things, the circular will note that the Notes do not guarantee a total 
return of principal at maturity, that they are subject to maximum total 
payment at maturity that is expected to be between $11.35 and $11.65 
per Note (the ``Maximum Payment at Maturity''), that the Notes will not 
pay interest, and that the Notes will provide exposure to the Index. 
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 the 
transactions in the Notes will trade the Notes. Nasdaq also represents 
that Morgan Stanley will deliver a prospectus in connection with the 
initial purchase of the Notes.
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    \20\ Nasdaq will advise members recommending a transaction in 
the Notes to: (1) Determine that the transaction is suitable for a 
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 involved in the transaction.
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    Second, the Commission notes that the final rate of return on the 
Notes depends in part upon the individual credit of the issuer, Morgan 
Stanley. To come extent this credit risk is minimized by NASD's listing 
standards in NASK Rule 4420(f), which provide that only issuers 
satisfying substantial asset and equity requirements may issue these 
types of hybrid securities. NASD's hybrid listing standards further 
require that the Notes have at least $4 million in market value. In 
addition, financial information regarding Morgan Stanley will be 
publicly available.
    Third, the Notes will be registered under Section 12 of the Act. 
NASD 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. and 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. The Commission believes 
that these rules and procedures will deter potential manipulation of 
the Notes.
    Fourth, the Commission has a systematic concern that a broker-
dealer, such as Morgan Stanley, or a subsidiary providing a hedge for 
the issuer will incur position exposure. As discussed in prior approval 
orders for other hybrid instruments issued by broker dealers,\21\ the 
Commission believes that this concern is minimal, given the size of the 
Notes issuance in relation to the net worth of Morgan Stanley.
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    \21\ See Securities and 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 by the Amex 
Institutional Index); and 37744 (September 27, 1996) (order 
approving File No. SR-Amex-96-27) (approving the listing and trading 
of notes issued by Merrill Lynch the return of which is based on a 
weighted portfolio of healthcare/biotechnology industry securities).
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    Fifth, the Commission believes the general broad diversification, 
level of capitalization, and trading activity in the markets for the 
Index's component stocks minimize the potential for manipulation of the 
Index. The Index is a capitalization-weighted index maintained by FRC. 
It is designed to track the performance of 2,000 common stocks of 
corporations with small market capitalizations relative to other stocks 
in the U.S. equity market. The companies represented in the Index are 
domiciled in the U.S. and its territories and represent a wide range of 
industry groups. All 2,000 stocks are traded on the New York Stock 
Exchange, the American Stock Exchange, or Nasdaq and form a part of the 
Russell 3000 Index. As of August 31, 2004, the total market 
capitalization of the Index was $953.34 billion and as of September 31, 
2004, the market capitalization of the Index components ranged from 
approximately $68 million to approximately $2.353 billion. As of the 
same date, the Index's highest weighted component stock constituted 
approximately 0.213% of the Index's market capitalization and the top 
five component stocks constituted approximately 0.9968% of the Index's 
market capitalization. For a 30-day period prior to August 19, 2004, 
the average daily trading volume of the average of all of the Index's 
components was approximately 195,000 shares. The Commission notes that 
the overwhelming majority of the stocks that comprise the Index are not 
inactively traded. The Commission also believes that the listing and 
trading of the Notes should not unduly impact the market for underlying 
securities comprising the Index. Finally, the Commission notes that the 
value of the Russell 2000 Index will be widely disseminated on a real-
time basis (at least every 15 seconds) throughout the trading day. In 
the event that the calculation and dissemination of the index from an 
independent third-party source is discontinued, Nasdaq states that it 
will delist the Notes.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice thereof in the Federal Register. In determining to grant the 
accelerated approval for good cause, the Commission notes that it has 
previously approved the listing of options on/ and or securities, the 
performance of which has been based on the Index.\22\ In addition, the 
Commission has previously approved the listing of securities with a 
structure that is the same or substantially the same as the Notes.\23\ 
The Commission believes the Notes will provide investors with an 
additional investment choice and that the accelerated approval of the 
proposal will allow investors to begin trading the Notes promptly. 
Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act for approving the proposed rule change prior to the 
thirtieth day after the date of publication in the Federal Register.
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    \22\ See Securities Exchange Act Release No. 31382 (October 30, 
1992), 57 FR 52802 (November 5, 1992) (SR-CBOE-92-02) (approving the 
listing and trading of options on the Index); Securities Exchange 
Act Release No. 49388 (March 10, 2004), 69 FR 12720 (March 17, 2004) 
(SR-CBOE-2003-51) (approving the listing and trading of options on 3 
Russell indexes; order contains the list of 12 additional Russell 
indexes that were approved by the Commission at various times in the 
past for option listing and trading).
    \23\ See Securities Exchange Act Release No. 50501 (October 7, 
2004), 69 FR 61533 (October 19, 2004) (SR-NASD-2004-138) (approving 
the listing and trading of PLUS based on the value of the Dow Jones 
Euro Stoxx 50 Index); Securities Exchange Act Release No. 48065 
(June 19, 2003), 68 FR 38414 (June 27, 2003) (SR-NASD-2003-100) 
(approving the listing and trading of PLUS based on the value of the 
Nasdaq-100).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\24\ that the proposed rule change (SR-NASD-2004-

[[Page 69440]]

157) is hereby approved on an accelerated basis.
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    \24\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-26304 Filed 11-26-04; 8:45 am]
BILLING CODE 8010-01-M