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Legal Dictionary
  • Narrow-Based Security Index
Narrow-Based Security Index
(A) The term "narrow-based security index" means “an index-- (i) that has 9 or fewer component securities; (ii) in which a component security comprises more than 30 percent of the index's weighting; (iii) in which the 5 highest weighted component securities in the aggregate comprise more than 60 percent of the index's weighting; or (iv) in which the lowest weighted component securities comprising, in the aggregate, 25 percent of the index's weighting have an aggregate dollar value of average daily trading volume of less than $ 50,000,000 (or in the case of an index with 15 or more component securities, $ 30,000,000), except that if there are two or more securities with equal weighting that could be included in the calculation of the lowest weighted component securities comprising, in the aggregate, 25 percent of the index's weighting, such securities shall be ranked from lowest to highest dollar value of average daily trading volume and shall be included in the calculation based on their ranking starting with the lowest ranked security. (B) Notwithstanding subparagraph (A), an index is not a narrow-based security index if-- (i) (I) it has at least 9 component securities; (II) no component security comprises more than 30 percent of the index's weighting; and (III) each component security is-- (aa) registered pursuant to section 12 of the Securities Exchange Act of 1934 [15 USCS § 78l]; (bb) one of 750 securities with the largest market capitalization; and (cc) one of 675 securities with the largest dollar value of average daily trading volume; (ii) a board of trade was designated as a contract market by the Commodity Futures Trading Commission with respect to a contract of sale for future delivery on the index, before the date of enactment of the Commodity Futures Modernization Act of 2000 [enacted Dec. 21, 2000]; (iii) (I) a contract of sale for future delivery on the index traded on a designated contract market or registered derivatives transaction execution facility for at least 30 days as a contract of sale for future delivery on an index that was not a narrow-based security index; and (II) it has been a narrow-based security index for no more than 45 business days over 3 consecutive calendar months; (iv) a contract of sale for future delivery on the index is traded on or subject to the rules of a foreign board of trade and meets such requirements as are jointly established by rule or regulation by the Commission and the Securities and Exchange Commission; (v) no more than 18 months have passed since the date of enactment of the Commodity Futures Modernization Act of 2000 [enacted Dec. 21, 2000] and-- (I) it is traded on or subject to the rules of a foreign board of trade; (II) the offer and sale in the United States of a contract of sale for future delivery on the index was authorized before the date of the enactment of the Commodity Futures Modernization Act of 2000 [enacted Dec. 21, 2000]; and (III) the conditions of such authorization continue to be met; or (vi) a contract of sale for future delivery on the index is traded on or subject to the rules of a board of trade and meets such requirements as are jointly established by rule, regulation, or order by the Commission and the Securities and Exchange Commission. (C) Within 1 year after the date of the enactment of the Commodity Futures Modernization Act of 2000 [enacted Dec. 21, 2000], the Commission and the Securities and Exchange Commission jointly shall adopt rules or regulations that set forth the requirements under subparagraph (B)(iv). (D) An index that is a narrow-based security index solely because it was a narrow-based security index for more than 45 business days over 3 consecutive calendar months pursuant to clause (iii) of subparagraph (B) shall not be a narrow-based security index for the 3 following calendar months. (E) For purposes of subparagraphs (A) and (B)-- (i) the dollar value of average daily trading volume and the market capitalization shall be calculated as of the preceding 6 full calendar months; and (ii) the Commission and the Securities and Exchange Commission shall, by rule or regulation, jointly specify the method to be used to determine market capitalization and dollar value of average daily trading volume.” (7 USCS § 1a)