Structured Thoughts: News For The Financial Services Community - Volume 3, Issue 2

Nasdaq Proposes Listing Rules Relating to Structured Products

In January 2012, Nasdaq proposed new rules for the listing and trading of a wide variety of structured notes and other related products.1 These rules would apply to equity-linked, commodity-linked, and other notes.

The proposed rules are based on the listing standards of NYSE Arca, where most U.S.-listed structured products currently trade. In the proposal, Nasdaq indicates that one of the purposes of the proposal is to promote competition and deeper markets.

Amended Nasdaq Rule 5710 would provide the continued listing standards for equity-linked and commodity-linked securities, together with initial and continuing listing standards for fixed-income linked, futures-linked, and multifactor index-linked securities. New Nasdaq Rule 5711 would include listing standards for:

index-linked exchangeable notes; equity gold shares; trust certificates; commodity-based trust shares; currency trust shares; commodity index trust shares; commodity futures trust shares; partnership units; trust units; managed trust securities; and currency warrants. The proposals also include provisions for delisting these types of securities, and requirements for market makers in these securities.

Nasdaq has requested that the SEC approve the proposed listing rules on an accelerated basis.

A listing of a particular structured product may not ensure that its holders will enjoy significant liquidity. But the proposal does potentially provide issuers with an additional option in listing structured products, potentially improving the competitiveness of the market for these listings.

Texas District Court Issues Ruling on Application of the 1933 Act on CDs

In November 2011, the United States District Court for the Northern District of Texas held that certain certificates of deposit, or CDs, sold by R. Allen Stanford ("Stanford") through Stanford International Bank, Ltd. ("SIB"), should be treated as securities under the federal securities laws.2

The case provides some insight and reminders as to the question of when CDs are subject to the registration requirements of the federal securities laws. Section 2(a)(1) of the Securities Act of 1933 includes "certificates of deposit" in the definition of the term "security." However, relevant federal judicial and regulatory guidance has held that FDIC-insured CDs are generally not considered practitioners "securities" under the U.S. federal securities laws3 and this has been a common understanding shared among securities lawyers and insiders. The Texas court's decision serves as a reminder that the courts are willing to carefully scrutinize CDs offered to investors, and provides issuers with judicial guidance as to the approach courts are willing to take in order to make such an assessment.

The Allegations

On February 17, 2009, the...