[Federal Register Volume 72, Number 46 (Friday, March 9, 2007)]
[Notices]
[Pages 10797-10801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-4192]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55385; File No. SR-NASDAQ-2007-018]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change to Trade iShares Silver Trust Pursuant to Unlisted Trading 
Privileges

March 2, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 10798]]

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 1, 2007, The NASDAQ Stock Market LLC (``Nasdaq'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
substantially prepared by Nasdaq. This order provides notice of the 
proposed rule change and approves it on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq is proposing to trade shares (``Shares'') of the iShares 
Silver Trust (``Trust'') pursuant to unlisted trading privileges 
(``UTP''). The text of the proposed rule change is available from 
Nasdaq's Web site at http://www.nasdaq.complinet.com, at Nasdaq's 
principal office, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, Nasdaq included statements 
concerning the purpose of, and basis for, 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 proposes to trade the Shares on a UTP basis. Nasdaq is 
submitting this filing because its current listing standards do not 
extend to the Shares. However, systems operated by Nasdaq and its 
affiliates currently trade the Shares on an over-the-counter basis as 
facilities of NASD. This filing will allow Nasdaq to trade the Shares 
as an exchange.
    The Shares represent beneficial ownership interests in the net 
assets of the Trust, consisting primarily of silver bullion. The 
investment objective of the Trust is for the Shares to reflect the 
performance of the price of silver, less the Trust's expenses. The 
Trust is not an investment company under the Investment Company Act of 
1940.
    The Commission previously approved the listing and trading of the 
Shares on the American Stock Exchange LLC (``Amex'').\3\ Nasdaq deems 
the Shares to be equity securities, thus rendering trading in the 
Shares subject to Nasdaq's existing rules governing the trading of 
equity securities, including Nasdaq Rule 4630.\4\ The primary trading 
hours for the Shares on Nasdaq would be 9:30 a.m. to 4 p.m. ET.
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    \3\ See Securities Exchange Act Release No. 53521 (March 20, 
2006), 71 FR 14967 (March 24, 2006) (SR-AMEX-2005-072) (``Amex 
Order'').
    \4\ On November 16, 2006, the Commission approved a filing by 
Nasdaq to adopt Rule 4630, which governs the trading of and 
surveillance procedures applicable to Commodity-Based Trust Shares. 
Securities Exchange Act Release No. 54765 (November 16, 2006), 71 FR 
67668 (November 22, 2006) (SR-NASDAQ-2006-009). Because silver is 
included within the rule's definition of a commodity, Rule 4630 is 
applicable to the Shares.
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    Issuances of Shares will be made only in baskets of 50,000 Shares 
or multiples thereof (``Baskets'' or ``Basket Aggregations''). The 
Trust issues and redeems the Shares on a continuous basis, by or 
through participants that have entered into participant agreements 
(each, an ``Authorized Participant'').\5\ Baskets are issued as an in-
kind exchange for a corresponding amount of silver. The basket amount 
of silver, measured in ounces (the ``Basket Silver Amount'') is 
determined on each business day by Bank of New York, as trustee for the 
Trust (``Trustee'').\6\ Authorized Participants are the only persons 
that may place orders to create and redeem Baskets. An Authorized 
Participant purchasing a Basket is able to separate it into individual 
Shares for resale.
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    \5\ An ``Authorized Participant'' is a person, who at the time 
of submitting to the trustee of the Trust an order to create or 
redeem one or more Baskets: (a) Is a registered broker-dealer; (b) 
is a Depository Trust Company Participant or Indirect Participant; 
and (c) has in effect a valid Authorized Participant Agreement.
    \6\ On each business day, the Trustee makes available, 
immediately prior to the opening of trading on Amex, the Indicative 
Basket Silver Amount for the creation of a Basket. The sponsor of 
the Trust also makes the next day's Indicative Basket Silver Amount 
available on the Trust's Web site at http://www.iShares.com shortly 
after 4 p.m. ET each business day.
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    When calculating the net asset value (``NAV'') per Share, the 
Trustee values the silver held by the Trust on the basis of the day's 
announced London silver fix price. The calculation methodology for the 
NAV is described in more detail in the Amex Order. After the NAV is 
determined, at or about 4 p.m. ET each business day, the Trustee then 
determines the Basket Silver Amount for orders placed by Authorized 
Participants received before 4 p.m. ET that day. The Trustee at the 
same time determines an ``Indicative Basket Silver Amount'' that 
Authorized Participants can use as an indicative amount of silver to be 
deposited for issuance of the Shares on the next business day. Thus, 
although Authorized Participants place orders to purchase Shares 
throughout the trading day, the actual Basket Silver Amount is 
determined at 4 p.m. ET or shortly thereafter.
    After 4 p.m. ET each business day, the Trustee and the sponsor of 
the Trust disseminate the NAV for the Shares, the Basket Silver Amount 
(for orders properly placed by 4 p.m. ET during the day), and the next 
day's Indicative Basket Silver Amount. The Basket Silver Amount, the 
Indicative Basket Silver Amount, and the NAV are communicated by the 
Trustee to all Authorized Participants via facsimile or electronic mail 
and on the Trust's Web Site at http://www.iShares.com (to which Nasdaq 
will link from its Web site at http://www.nasdaq.com).
    Quotations for and last sale information regarding the Shares are 
disseminated through the Consolidated Tape System. The Web site for the 
Trust, which is publicly accessible at no charge, contains the 
following information: (a) The prior business day's NAV and the 
reported closing price; (b) the mid-point of the bid-ask price in 
relation to the NAV as of the time the NAV is calculated (the ``Bid-Ask 
Price''); (c) calculation of the premium or discount of such price 
against such NAV; (d) data in chart form displaying the frequency 
distribution of discounts and premiums of the Bid-Ask Price against the 
NAV, within appropriate ranges for each of the four previous calendar 
quarters; (e) the Basket Silver Amount; (f) the Indicative Basket 
Silver Amount; (g) the Prospectus; and (h) other applicable 
quantitative information, such as expense ratios, trading volumes, and 
the total returns of the Shares.
    The Trust's Web site also provides at no charge continuously 
updated bids and offers indicative of the spot price of silver.\7\ 
Complete real-time data for silver futures contracts and options prices 
traded on the COMEX, a division of the New York Mercantile Exchange, 
Inc. (``NYMEX''), is available by subscription from Reuters and 
Bloomberg and also on a delayed basis free of charge on the NYMEX Web 
site at http://www.nymex.com. The London silver fix price is readily 
available from the LBMA at http://www.lbma.org.uk, automated quotation 
systems, published or other public sources, or online

[[Page 10799]]

information services such as Bloomberg or Reuters.
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    \7\ The Trust's Web site's silver spot price is provided by The 
Bullion Desk (http://thebulliondesk.com), which is not affiliated 
with Amex, the Trust, the Trustee, or the sponsor of the Trust.
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    According to the Amex Order, Amex also disseminates for the Trust 
on a daily basis by means of CTA/CQ High Speed Lines information with 
respect to the Indicative Trust Value (``ITV'') for the Trust. The ITV 
is disseminated on a per-Share basis at least every 15 seconds from 
9:30 a.m. to 4:15 p.m. ET. The ITV is calculated based on the amount of 
silver required for creations and redemptions and a price of silver 
derived from updated bids and offers indicative of the spot price of 
silver.
    Nasdaq will halt trading in the Shares under the conditions 
specified in Nasdaq Rules 4120 and 4121. The conditions for a halt 
include a regulatory halt by the listing market. UTP trading in the 
Shares will also be governed by provisions of Nasdaq Rule 4120(b) 
relating to temporary interruptions in the calculation or wide 
dissemination of the Indicative Trust Value (which is comparable to the 
IIV or IOPV of an ETF) or the value of the spot price of silver. 
Additionally, Nasdaq may cease trading the Shares if other unusual 
conditions or circumstances exist which, in the opinion of Nasdaq, make 
further dealings on Nasdaq detrimental to the maintenance of a fair and 
orderly market. Nasdaq will also follow any procedures with respect to 
trading halts as set forth in Nasdaq Rule 4120(c). Finally, Nasdaq will 
stop trading the Shares if the listing market delists them.
    Nasdaq believes that its surveillance procedures are adequate to 
address any concerns about the trading of the Shares on Nasdaq. Trading 
of the Shares through NASD facilities operated by Nasdaq is currently 
subject to NASD's surveillance procedures for equity securities in 
general and ETFs in particular. After Nasdaq begins to trade the Shares 
as an exchange, NASD, on behalf of Nasdaq, will continue to surveil 
Nasdaq trading, including Nasdaq trading of the Shares. Nasdaq's 
transition to exchange status will not result in any change in the 
surveillance process with respect to the Shares.\8\ In addition, Nasdaq 
has entered into an information sharing agreement with NYMEX for the 
purpose of providing information in connection with trading in or 
related to COMEX silver futures contracts.
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    \8\ Surveillance of all trading on NASD facilities operated by 
Nasdaq, including the trading of the Shares, is currently being 
conducted by NASD. After Nasdaq begins to trade the Shares as an 
exchange, NASD will continue to surveil trading pursuant to a 
regulatory services agreement. Nasdaq is responsible for NASD's 
performance under this regulatory services agreement.
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    In connection with the trading of the Shares, Nasdaq will inform 
its members in an Information Circular of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Circular will discuss the following: (a) The procedures for 
purchases and redemptions of Shares in Baskets (including noting that 
Shares are not individually redeemable); (b) Nasdaq Rule 2310, which 
imposes suitability obligations on Nasdaq members with respect to 
recommending transactions in the Shares to customers; (c) how 
information regarding the ITV is disseminated; (d) the requirement that 
members deliver a prospectus to investors purchasing the Shares prior 
to or concurrently with the confirmation of a transaction; and (e) 
trading information. Nasdaq notes that investors purchasing Shares 
directly from the Trust (by delivery of the Basket Silver Amount) will 
receive a prospectus. Members purchasing Shares from the Trust for 
resale to investors will deliver a prospectus to such investors.
    In addition, the Information Circular will reference that the Trust 
is subject to various fees and expenses described in the Registration 
Statement and that the number of ounces of silver required to create a 
Basket or to be delivered upon redemption of a Basket will gradually 
decrease over time because the Shares comprising a Basket will 
represent a decreasing amount of silver due to the sale of the Trust's 
silver to pay Trust expenses. The Information Circular will also 
reference the fact that there is no regulated source of last-sale 
information regarding physical silver, that the Commission has no 
jurisdiction over the trading of silver as a physical commodity, and 
that the CFTC has regulatory jurisdiction over the trading of silver 
futures contracts and options on silver futures contracts. The 
Information Circular will also discuss any relief granted by the 
Commission or the staff from any rules under the Act.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act \9\ in general and Section 6(b)(5) of the Act \10\ in 
particular in that in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, remove impediments to a free and open market and a 
national market system, and, in general, to protect investors and the 
public interest. In addition, Nasdaq believes that the proposal is 
consistent with Rule 12f-5 under the Act \11\ because it deems the 
Shares to be equity securities, thus rendering trading in the Shares 
subject to Nasdaq's existing rules governing the trading of equity 
securities.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 17 CFR 240.12f-5.
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B. Self-Regulatory Organization's Statement on Burden on Competition

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

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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NASDAQ-2007-018 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

    All submissions should refer to File Number SR-NASDAQ-2007-018. 
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

[[Page 10800]]

public in accordance with the provisions of 5 U.S.C. 552, will be 
available for inspection and copying in the Commission's Public 
Reference Room. Copies of such filing also will be available for 
inspection and copying at the principal office of Nasdaq. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2007-018 and should 
be submitted on or before March 30, 2007.

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

    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 
exchange.\12\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\13\ which 
requires that an exchange have rules designed, among other things, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and in general to protect investors and the public 
interest. The Commission believes that this proposal should benefit 
investors by increasing competition among markets that trade the 
Shares.
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    \12\ In approving this rule change, the Commission notes that it 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f(b)(5).
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    In addition, the Commission finds that the proposal is consistent 
with Section 12(f) of the Act,\14\ which permits an exchange to trade, 
pursuant to UTP, a security that is listed and registered on another 
exchange.\15\ The Commission notes that it previously approved the 
listing and trading of the Shares on Amex.\16\ The Commission also 
finds that the proposal is consistent with Rule 12f-5 under the 
Act,\17\ which provides that an exchange shall not extend UTP to a 
security unless the exchange has in effect a rule or rules providing 
for transactions in the class or type of security to which the exchange 
extends UTP. Nasdaq has represented that it meets this requirement 
because it deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to Nasdaq's existing rules governing the 
trading of equity securities, including Nasdaq Rule 4630 which governs 
the trading of and surveillance procedures applicable to Commodity-
based trust shares such as the Shares.
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    \14\ 15 U.S.C. 78l(f).
    \15\ Section 12(a) of the Act, 15 U.S.C. 78l(a), generally 
prohibits a broker-dealer from trading a security on a national 
securities exchange unless the security is registered on that 
exchange pursuant to Section 12 of the Act. Section 12(f) of the Act 
excludes from this restriction trading in any security to which an 
exchange ``extends UTP.'' When an exchange extends UTP to a 
security, it allows its members to trade the security as if it were 
listed and registered on the exchange even though it is not so 
listed and registered.
    \16\ See supra note 3.
    \17\ 17 CFR 240.12f-5.
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    The Commission further believes that the proposal is consistent 
with Section 11A(a)(1)(C)(iii) of the Act,\18\ which sets forth 
Congress' finding that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities. Quotations for and last sale information regarding the 
Shares are disseminated through the Consolidated Tape System. 
Furthermore, an ITV for each Trust on a per-Share basis is disseminated 
by Amex through the CTA/CQ High Speed Lines at least every 15-seconds 
during Nasdaq's regular trading hours. In addition, the Trustee 
disseminates the Basket Silver Amount, the Indicative Basket Silver 
Amount, and the NAV to all Authorized Participants via facsimile or e-
mail. This information--as well as additional trading data such as the 
prior business day's NAV and reported closing price, the Bid-Ask Price 
and updated bids and offers indicative of the spot price of silver--is 
also available on the Trust's Web site to which Nasdaq's Web site will 
link. Furthermore, complete real-time data for silver future contracts 
and option prices traded on COMEX is available by subscription from 
Bloomberg and Reuters and also on a delayed basis free of charge on 
NYMEX's Web site. The London silver fix price is readily available from 
the LBMA Web site, automated quotation systems, published or other 
public sources, or on-line information services. If the listing market 
halts trading in the Shares, or if the ITV or the value of the spot 
price of silver is not being calculated or disseminated, Nasdaq would 
halt trading in the Shares.
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    \18\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    The Commission notes that, if the Shares should be delisted by the 
listing exchange, Nasdaq would no longer have authority to trade the 
Shares pursuant to this order.
    In support of this proposal, Nasdaq has made the following 
representations:
    (1) Nasdaq's surveillance procedures are adequate to address any 
concerns associated with the trading of the Shares on Nasdaq.
    (2) Nasdaq has entered into an Information Sharing Agreement with 
NYMEX for the purpose of providing information in connection with 
trading in or related to COMEX silver futures contracts.
    (3) Nasdaq would inform its members in an Information Circular of 
the special characteristics and risks associated with trading the 
Shares, including procedures for purchases and redemptions of Shares, 
suitability recommendation requirements, dissemination of the ITV, and 
trading information.
    (4) Nasdaq would require its members to deliver a prospectus to 
investors purchasing Shares prior to or concurrently with a transaction 
in such Shares and will note this prospectus delivery requirement in 
the Information Circular.
    This approval order is conditioned on Nasdaq's adherence to these 
representations.
    The Commission finds good cause for approving this proposal before 
the thirtieth day after the publication of notice thereof in the 
Federal Register. As noted above, the Commission previously found that 
the listing and trading of the Shares on Amex is consistent with the 
Act. The Commission presently is not aware of any regulatory issue that 
should cause it to revisit that finding or would preclude the trading 
of the Shares on Nasdaq pursuant to UTP. Furthermore, accelerated 
approval of this proposal will facilitate Nasdaq's ability to continue 
trading these securities as Nasdaq becomes an exchange with respect to 
non-Nasdaq-listed securities, where there appears to be no regulatory 
concerns about such trading. Therefore, accelerating approval of this 
proposal should benefit investors by creating, without undue delay, 
additional competition in the market for such Shares.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\19\ that the proposed rule change (SR-NASDAQ-2007-018), 
be, and it hereby is, approved on an accelerated basis.
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    \19\ Id.


[[Page 10801]]


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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-4192 Filed 3-8-07; 8:45 am]
BILLING CODE 8010-01-P