[Federal Register Volume 72, Number 100 (Thursday, May 24, 2007)]
[Notices]
[Pages 29191-29194]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-10038]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55781; File No. SR-NASDAQ-2007-052]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change to the Trade Units of the United States Natural Gas Fund, 
LP Pursuant to Unlisted Trading Privileges

May 17, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 10, 2007, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
This order provides notice of the proposed rule change and approves the 
proposal 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 proposes to trade, pursuant to unlisted trading privileges 
(``UTP''), units (``Units'') of the United States Natural Gas Fund, LP 
(``USNG'' or the ``Partnership'').
    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, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    Nasdaq proposes to trade pursuant to UTP the Units, which represent 
ownership of a fractional undivided interest in the net assets of 
USNG.\3\ The net assets of USNG consist of investments in futures 
contracts based on natural gas, crude oil, heating oil, gasoline, and 
other petroleum-based fuels traded on the New York Mercantile Exchange 
(``NYMEX''), Intercontinental Exchange (``ICE Futures''), or other U.S. 
and foreign exchanges (collectively, ``Futures Contracts''). USNG may 
also invest in other natural-gas-related investments such as cash-
settled options on Futures Contracts, forward contracts for natural 
gas, and over-the-counter transactions that are based on the price of 
natural gas, oil, and other petroleum-based fuels, Futures Contracts, 
and indices based on the foregoing (collectively, ``Other Natural Gas 
Related Investments''). Futures Contracts and Other Natural Gas Related 
Investments collectively are referred to as ``Natural Gas Interests.''
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    \3\ USNG is commodity pool that issues Units that may be 
purchased and sold on Nasdaq.
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    The investment objective of USNG is for changes in percentage terms 
of a Unit's net asset value (``NAV'') \4\ to reflect the changes in 
percentage terms of the price of natural gas delivered to the Henry 
Hub, Louisiana as measured by the natural gas futures contract traded 
on NYMEX (``Benchmark Futures Contract''). The Benchmark Futures 
Contract employed is the near month expiration contract, except when 
the near month contract is within two weeks of expiration, in which 
case USNG would invest in the next expiration month. USNG invests in 
Natural Gas Interests to the fullest extent possible without being 
leveraged or unable to satisfy its current or potential margin or 
collateral obligations. In pursuing this objective, the primary focus 
of USNG's investment manager, Victoria Bay Asset Management, LLC 
(``General Partner''), is the investment in Futures Contracts and the 
management of its investments in short-term obligations of the United 
States (``Treasuries''), cash equivalents, and cash for margining 
purposes and as collateral. The Commission previously approved the 
original listing and trading of the Units by the American Stock 
Exchange (``Amex'').\5\
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    \4\ NAV is the total assets less total liabilities of USNG, 
determined on the basis of generally accepted accounting principles. 
NAV per Unit is the NAV of USNG divided by the number of outstanding 
Units.
    \5\ See Securities Exchange Act Release No. 55632 (April 13, 
2007), 72 FR 19987 (April 20, 2007) (``Amex Order''); Securities 
Exchange Act Release No. 55372 (February 28, 2007), 72 FR 10267 
(March 7, 2007) (SR-Amex-2006-112) (``Amex Notice'').
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    Issuances of the Units of USNG is made only in baskets of 100,000 
Units (``Basket'') or multiples thereof. A Basket is issued in exchange 
for Treasuries and/or cash in an amount equal to the NAV per Unit times 
100,000 Units (``Basket Amount''). An Authorized Purchaser \6\ that 
wishes to purchase a Basket must transfer the Basket Amount to the 
administrator \7\ (``Deposit Amount''). An Authorized Purchaser that 
wishes to redeem a Basket would receive an amount of Treasuries and 
cash in exchange for each Basket surrendered in an amount equal to the 
NAV per Basket.
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    \6\ An ``Authorized Purchaser'' is a person, who at the time of 
submitting to the General Partner of USNG an order to create or 
redeem one or more Baskets, (i) Is a registered broker-dealer or 
other market participant, such as a bank or other financial 
institution that is exempt from broker-dealer registration; (ii) is 
a Depository Trust Company Participant; and (iii) has in effect a 
valid Authorized Purchaser Agreement.
    \7\ Under separate agreements with USNG, Brown Brothers Harriman 
& Co. serves as USNG's administrator, registrar, transfer agent, and 
custodian.
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    The daily settlement prices for the NYMEX-traded Futures Contracts 
held by USNG are publicly available on the NYMEX Web site at http://www.nymex.com. Nasdaq on its Web site at http://www.nasdaq.com will 
include a hyperlink to the NYMEX Web site for the purpose of disclosing 
futures contract pricing. NYMEX also provides delayed futures 
information on current and past trading sessions and market news free 
of charge on its Web site. The specific contract specifications for the 
futures contracts are also available on the NYMEX Web site and the ICE 
Futures Web site at http://www.icefutures.com.

[[Page 29192]]

    The Web site for Amex at http://www.amex.com, which is publicly 
accessible at no charge, contains the following information: (1) The 
prior business day's NAV and the reported closing price; (2) the mid-
point of the bid-ask price \8\ in relation to the NAV as of the time 
the NAV is calculated (``Bid-Ask Price''); (3) calculation of the 
premium or discount of such price against such NAV; (4) data in chart 
form displaying the frequency distribution of discounts and premiums of 
the Bid-Ask Price against the NAV, within appropriate ranges for each 
of the four previous calendar quarters; (5) the prospectus; and the 
most recent periodic reports filed with the Commission or required by 
the CFTC; and (6) other applicable quantitative information.
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    \8\ The Bid-Ask Price of Units is determined using the highest 
bid and lowest offer as of the time of calculation of the NAV.
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    USNG's total portfolio composition is disclosed, each business day 
that Amex is open for trading, on USNG's Web site at http://www.unitedstatesnaturalgasfund.com. USNG expects that Web site 
disclosure of portfolio holdings will be made daily and will include, 
as applicable, the name and value of each Natural Gas Interest, the 
specific types of Natural Gas Interests, and characteristics of such 
Natural Gas Interests, Treasuries, and amount of cash and cash 
equivalents held in the portfolio of USNG. The public Web site 
disclosure of the portfolio composition of USNG coincides with the 
disclosure by the administrator on each business day of the NAV for the 
Units. Therefore, the same portfolio information is provided on the 
public Web site as well as in the facsimile or e-mail to Authorized 
Purchasers containing the NAV and Basket Amount (``Daily 
Dissemination''). The format of the public Web site disclosure and the 
Daily Dissemination differ because the public Web site lists all 
portfolio holdings while the Daily Dissemination provides the portfolio 
holdings in a format appropriate for Authorized Purchasers, i.e., the 
exact components of a Creation Unit.
    As described above, the NAV for USNG is calculated and disseminated 
daily.\9\ Amex also disseminates for USNG on a daily basis, by means of 
CTA/CQ High Speed Lines, information with respect to the Indicative 
Partnership Value (as discussed below), recent NAV, Units outstanding, 
the Basket Amount, and the Deposit Amount. Amex also makes available on 
its Web site daily trading volume, closing prices, and the NAV. The 
closing price and settlement prices of the futures contracts held by 
USNG are also readily available from the NYMEX, automated quotation 
systems, published or other public sources, or on-line information 
services such as Bloomberg or Reuters. In addition, Nasdaq will provide 
a hyperlink on its Web site at http://www.nasdaq.com to USNG's Web 
site.
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    \9\ Amex has obtained a representation from USNG that its NAV 
per Unit will be calculated daily and made available to all market 
participants at the same time.
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    In order to provide updated information relating to USNG for use by 
investors, professionals, and persons wishing to create or redeem the 
Units, Amex disseminates through the facilities of the CTA an updated 
Indicative Partnership Value (``Indicative Partnership Value''). The 
Indicative Partnership Value is disseminated on a per-Unit basis at 
least every 15 seconds during the regular trading hours of 9:30 a.m. to 
4:15 p.m. ET. The Indicative Partnership Value is calculated based on 
the Treasuries and cash required for creations and redemptions (i.e., 
NAV per limit x 100,000) adjusted to reflect the price changes of the 
Benchmark Futures Contract.
    Nasdaq will halt trading in the Units 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 
Units will also be governed by provisions of Nasdaq Rule 4120(b) 
relating to temporary interruptions in the calculation or wide 
dissemination of the Indicative Partnership Value. Additionally, Nasdaq 
may cease trading the Units 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 Units if the listing market delists them.
    Nasdaq deems the Units to be equity securities, thus rendering 
trading in the Units subject to its existing rules governing the 
trading of equity securities, including Rule 4630, which governs 
trading of Commodity-Related Securities. The trading hours for the 
Units on the Exchange would be 9:30 a.m. to 4:15 p.m., ET.
    Nasdaq believes that its surveillance procedures are adequate to 
address any concerns about the trading of the Units on Nasdaq. Trading 
of the Units through Nasdaq facilities is currently subject to NASD's 
surveillance procedures for equity securities in general and ETFs in 
particular.\10\
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    \10\ NASD surveils trading pursuant to a regulatory services 
agreement. Nasdaq is responsible for NASD's performance under this 
regulatory services agreement.
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    Nasdaq is able to obtain information regarding trading in the Units 
and the underlying Futures Contracts through its members in connection 
with the proprietary or customer trades that such members effect on any 
relevant market. In addition, Nasdaq may obtain trading information via 
the Intermarket Surveillance Group (``ISG'') from other exchanges who 
are members or affiliates of the ISG. Finally, Nasdaq is party to 
Information Sharing Agreements with NYMEX and ICE Futures for the 
purpose of providing information in connection with trading in or 
related to Futures Contracts traded on the those markets. To the extent 
that USNG invests in Natural Gas Interests traded on other exchanges, 
Nasdaq will enter into information sharing agreements with those 
particular exchanges.\11\
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    \11\ In such event, Nasdaq will file a proposed rule change 
pursuant to Rule 19b-4 of the Act, indicating such surveillance 
arrangements.
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    Prior to the commencement of trading, Nasdaq will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Units. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Units in Baskets (and that Units are not 
individually redeemable); (2) Nasdaq Rule 2310, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Units to customers; (3) how information regarding 
the Intraday Partnership Value is disseminated; (4) the requirement 
that members deliver a prospectus to investors purchasing newly issued 
Units prior to or concurrently with the confirmation of a transaction; 
and (5) trading information. The Information Circular will also discuss 
any exemptive, no-action, and interpretive relief granted by the 
Commission from any rules under the Act.
    In addition, the Information Circular will reference that USNG is 
subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also reference that the CFTC 
has regulatory jurisdiction over the trading of natural-gas-based 
futures contracts and related options.
    The Information Circular will also disclose the trading hours of 
the Units of USNG and that the NAV for the Units

[[Page 29193]]

will be calculated after 4 p.m. ET each trading day. The Information 
Circular will also disclose that information about the Units of USNG 
will be publicly available on USNG's Web site.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \12\ in general and Section 6(b)(5) of the Act \13\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to 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 \14\ because it deems the 
Covered Securities to be an equity securities, thus rendering trading 
in the Covered Securities subject to Nasdaq's existing rules governing 
the trading of equity securities.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ 17 CFR 240.12f-5.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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-2007-052 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-2007-052. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NASDAQ-2007-052 and should be submitted on or before 
June 14, 2007.

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

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\15\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\16\ which 
requires that an exchange have rules designed, among other things, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and in general to protect investors and the public 
interest. The Commission believes that this proposal should benefit 
investors by increasing competition among markets that trade the Units.
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    \15\ In approving this rule change, the Commission notes that it 
has considered the proposal's impact on efficiency, competition, and 
capital formation. See 15 U.S.C. 78c(f).
    \16\ 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,\17\ which permits an exchange to trade, 
pursuant to UTP, a security that is listed and registered on another 
exchange.\18\ The Commission notes that it previously approved the 
listing and trading of the Units on Amex.\19\ The Commission also finds 
that the proposal is consistent with Rule 12f-5 under the Act,\20\ 
which provides that an exchange shall not extend UTP to a security 
unless the exchange has in effect a rule or rules providing for 
transactions in the class or type of security to which the exchange 
extends UTP. The Exchange has represented that it meets this 
requirement because it deems the Units to be equity securities, thus 
rendering trading in the Units subject to the Exchange's existing rules 
governing the trading of equity securities.
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    \17\ 15 U.S.C. 78l(f).
    \18\ Section 12(a) of the Act, 15 U.S.C. 78l(a), generally 
prohibits a broker-dealer from trading a security on a national 
securities exchange unless the security is registered on that 
exchange pursuant to Section 12 of the Act. Section 12(f) of the Act 
excludes from this restriction trading in any security to which an 
exchange ``extends UTP.'' When an exchange extends UTP to a 
security, it allows its members to trade the security as if it were 
listed and registered on the exchange even though it is not so 
listed and registered.
    \19\ See supra note 5.
    \20\ 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,\21\ which sets forth 
Congress' finding that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities. Quotations for and last-sale information regarding the 
Units are disseminated through the facilities of the CTA and the 
Consolidated Quotation System. Furthermore, the Indicative Partnership 
Value is calculated by Amex and published via the facilities of the 
Consolidated Tape Association on a 15-second delayed basis throughout 
the trading hours for the Units. In addition, if the listing market 
halts trading when the Indicative Partnership Value is not being 
calculated or disseminated, the Exchange would halt trading in the 
Shares.
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    \21\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    The Commission notes that, if the Units should be delisted by the 
listing exchange, the Exchange would no

[[Page 29194]]

longer have authority to trade the Units pursuant to this order.
    In support of this proposal, the Exchange has made the following 
representations:
    1. The Exchange has in place an Information Sharing Agreement with 
the NYMEX and ICE Futures for the purpose of providing information in 
connection with trading in or related to futures contracts traded on 
the NYMEX and ICE Futures, respectively. To the extent USNG invests in 
Natural Gas Interests traded on other exchanges, the Exchange will 
enter into information sharing agreements with those particular 
exchanges.
    2. The Exchange's surveillance procedures are adequate to properly 
monitor trading of the Units on the Exchange.
    3. Prior to the commencement of trading, the Exchange will inform 
its members in an Information Circular of the special characteristics 
and risks associated with trading the Units.
    4. The Information Circular will discuss the requirement that 
members deliver a prospectus to investors purchasing newly issued Units 
prior to or concurrently with the confirmation of a transaction.

This approval order is conditioned on the Exchange'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 previously, the Commission previously found 
that the listing and trading of the Units 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 Units on the Exchange pursuant to UTP. Therefore, 
accelerating approval of this proposal should benefit investors by 
creating, without undue delay, additional competition in the market for 
the Units.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-NASDAQ-2007-052), be and it 
hereby is, approved on an accelerated basis.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-10038 Filed 5-23-07; 8:45 am]
BILLING CODE 8010-01-P