November 13, 2002
Edward S. Knight, Esq.
Re: Exemptive Relief for Exchange Traded Funds
File No. TP 03-19
Dear Mr. Knight:
In your letter dated November 12, 2002, as supplemented by conversations with the staff, the NASDAQ Stock Market, Inc. (NASDAQ) requests that no-action advice and exemptive relief with respect to specified rules under the Securities Exchange Act of 1934 (Exchange Act) previously given to the American Stock Exchange (AMEX) for certain Portfolio Depositary Receipts (PDRs) and Index Fund Shares,1 be extended to the trading of these products on the NASDAQ.2 We are responding to your request and have enclosed a photocopy of your letter. Each defined term in this letter has the same meaning as defined in your letter, unless we note otherwise.
Specifically, the NASDAQ seeks on behalf of itself and persons or entities engaging in transactions involving Fund Shares, certain exemptions from, or no-action advice regarding, Section 11(d)(1) of the Exchange Act and Rules 10b-10, 10b-17, 11d1-2, 14e-5, 15c1-5, and 15c1-6 thereunder, and Rules 101 and 102 of Regulation M in connection with secondary market transactions in Fund Shares and the creation and redemption of Fund Shares, that meet the criteria enunciated in the AMEX Letter.3
The AMEX Letter describes conditions for ETFs that if met, alleviate the need for individual funds to apply to the Commission for relief to trade as intended. The NASDAQ has obtained the necessary Rule 19b-4(e) listing approval for ETFs from the Commission,4 as required in the AMEX Letter. However, the NASDAQ currently cannot meet another of the prerequisites for relief, i.e., that qualified ETFs must trade on a "registered national securities exchange".5
As you describe in your letter, the NASDAQ is a large and well-established stock market. Given the NASDAQ's adoption of approved listing standards and your representations regarding the NASDAQ's trading capabilities, it is appropriate to extend the relief previously granted to national securities exchanges to the NASDAQ for the purpose of trading ETFs.
Therefore, the relief described in the AMEX Letter, excluding the exemption from Rule 10a-1, is hereby extended to qualified ETFs trading on the NASDAQ.6 This grant of relief is explicitly subject to all of the requirements and conditions of the AMEX Letter, except the Exchange Requirement. Requests for relief from NASDAQ-listed ETFs that cannot meet the criteria will continue to be considered upon request, on a case-by-case basis.
These exemptions and no-action positions are subject to modification or revocation if at any time the Commission determines that such action is necessary or appropriate in furtherance of the purposes of the Exchange Act. In addition, persons relying on these exemptions and no-action positions are directed to the anti-fraud and anti-manipulation provisions of the Exchange Act, particularly Sections 9(a), 10(b), and Rule 10b-5 there under. Responsibility for compliance with these and other provisions of the federal or state securities laws must rest with persons relying on these exemptions and no-action positions. The Division expresses no view with respect to other questions that the proposed transactions may raise, including, but not limited to, the adequacy of disclosure concerning, and the applicability of other federal and state laws to, the proposed transactions.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority,
1 As in your incoming letter, PDRs and Index Fund Shares are collectively referred to as "Exchange Traded Funds" or "ETFs". Shares, portfolio deposit receipts, or units of beneficial interest issued by ETFs for trading are collectively referred to as "Fund Shares".
2 In a letter to the AMEX, the Securities and Exhange Commission (Commission), granted certain relief from Section 11(d)(1) of the Exchange Act and Rules 10a-1, 10b-10, 10b-17, 11d1-2, 14e-5, 15c1-5, and 15c1-6 thereunder, and Rules 101 and 102 of Regulation M, to a class of ETFs that meet specified criteria. See letter from James A. Brigagliano, Assistant Director, Division of Market Regulation, to Claire P. McGrath, Vice President, AMEX, dated August 17, 2001(AMEX Letter). Unlike the AMEX Letter, you do not ask for and we do not grant relief from Rule 10a-1, as it does not apply to trading on the NASDAQ.
3 In addition to the AMEX Letter, the Commission has granted relief under these rules to many ETFs traded on the AMEX and other exchanges. See letter from Nancy J. Sanow, Assistant Director, Division of Market Regulation, to James F. Duffy, General Counsel, AMEX, dated January 22, 1993 (regarding SPDRs listed on the AMEX); letter from James A. Brigagliano, Assistant Director, Division of Market Regulation, to James F. Duffy, General Counsel, AMEX, dated March 3, 1999 (regarding Nasdaq 100 Fund listed on the AMEX); letter from James A. Brigagliano, Assistant Director, Division of Market Regulation, to Mary Joan Hoene, Carter, Ledyard & Milburn, dated September 5, 2000 (regarding iShares S&P 100 listed on the CBOE); letter from James A. Brigagliano, Assistant Director, Division of Market Regulation, to Mary Joan Hoene, Carter, Ledyard & Milburn, dated December 1, 2000 (regarding iShares S&P 100 Global listed on the NYSE).
4 Securities Exhange Act Release No. 45920 (May 13, 2002).
5 Hereinafter referred to as the "Exchange Requirement".
6 The Commission continues to review NASDAQ's pending application to register as a national securities exchange. This letter does not address or resolve the issues presented in that application, does not make any findings with respect thereto, and does not suggest what, if any, future actions the Commission may take with regard to that application.
Incoming LetterThe incoming letter is attached in PDF format.