Federal Register / Vol. 72, No. 15 / Wednesday, January 24, 2007 / Notices 3179 

6 15 U.S.C. 78f(b)(4). 

7 15 U.S.C. 78s(b)(3)(A)(ii). 

8 17 CFR 240.19b–4(f)(2). 9 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

Act,6 in particular, in that the proposal 

provides for the equitable allocation of 

reasonable dues, fees, and other charges 

among its members and issuers and 

other persons using any facility or 

system which Nasdaq operates or 

controls. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

Nasdaq does not believe that the 

proposed rule change will result in 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 were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing proposed rule change is 

subject to Section 19(b)(3)(A)(ii) of the 

Act 7 and subparagraph (f)(2) of Rule 

19b–4 thereunder 8 because it 

establishes or changes a due, fee, or 

other charge applicable only to a 

member imposed by the self-regulatory 

organization. Accordingly, the proposal 

is effective upon Commission receipt of 

the filing. At any time within 60 days 

of the filing of the proposed rule change, 

the Commission may summarily 

abrogate such rule change if it appears 

to the Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. 

IV. 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 

rule-comments@sec.gov. Please include 

File Number SR–NASDAQ–2006–059 

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–2006–059. 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 the 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–2006–059 and 

should be submitted on or before 

February 14, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.9

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 07–284 Filed 1–23–07; 8:45 am] 

BILLING CODE 8011–01–M 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55113; File No. SR–NYSE–

2006–101] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing and Order Granting Accelerated 

Approval of a Proposed Rule Change 

as Modified by Amendments No. 1 and 

2 Thereto Adopting Generic Listing 

Standards for Exchange-Traded Funds 

Based on International or Global 

Indexes or Indexes Previously 

Approved by the Commission as 

Underlying Benchmarks for Derivative 

Securities 

January 17, 2007. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on November 21, 2006, the New York 

Stock Exchange LLC (‘‘NYSE’’ 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. 

On January 11, 2007, the Exchange filed 

Amendment No. 1 to the proposal. On 

January 16, 2007, the Exchange filed 

Amendment No. 2 to the proposal. This 

order provides notice of the proposed 

rule change as amended and approves 

the proposed rule change as amended 

on an accelerated basis. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The text of the proposed rule change 

is available at the Exchange, from the 

Commission’s Public Reference Room, 

and on NYSE’s Web site (http:// 

www.nyse.com). 

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. 


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3 15 U.S.C. 78s(b)(2). 

4 17 CFR 240.19b–4(e). 

5When relying on Rule 19b–4(e), the SRO must 

submit Form 19b–4(e) to the Commission within 

five business days after the exchange begins trading 

the new derivative securities products. See 17 CFR 

240.19b–4(e)(2)(ii). 

6 In either case, an ETF, by its terms, may be 

considered invested in the securities of the 

underlying index to the extent the ETF invests in 

sponsored American Depository Receipts (‘‘ADRs’’), 

Global Depository Receipts (‘‘GDRs’’), or European 

Depository Receipts (‘‘EDRs’’) that trade on 

exchanges with last-sale reporting representing 

securities in the underlying index. 

7For an ETF to qualify for tax treatment as a 

regulated investment company, it must meet several 

requirements under the IRC. Among these is the 

requirement that, at the close of each quarter of the 

ETF’s taxable year, (1) at least 50% of the market 

value of the ETF’s total assets must be represented 

by cash items, U.S. government securities, 

securities of other regulated investment companies, 

and other securities, with such other securities 

limited for purposes of this calculation in respect 

of any one issuer to an amount not greater than 5% 

of the value of the ETF’s assets and not greater than 

10% of the outstanding voting securities of such 

issuer; and (2) not more than 25% of the value of 

its total assets may be invested in the securities of 

any one issuer, or two or more issuers that are 

controlled by the ETF (within the meaning of 

Section 851(b)(4)(B) of the IRC) and that are 

engaged in the same or similar trades or businesses 

or related trades or businesses (other than U.S. 

government securities or the securities of other 

regulated investment companies). 

8 In 1996, the Commission approved Section 

703.16 of the Listed Company Manual, which sets 

forth the rules related to the listing of ICUs. See 

Securities Exchange Act Release No. 36923 (March 

5, 1996), 61 FR 10410 (March 13, 1996) (SR–NYSE–

95–23). In 2000, the Commission approved the 

Exchange’s generic listing standards for the listing 

and trading, or the trading pursuant to unlisted 

trading privileges, of ICUs under Section 703.16 of 

the Manual and Exchange Rule 1100. See Securities 

Exchange Act Release No. 43679 (December 5, 

2000), 65 FR 77949 (December 13, 2000) (SR–

NYSE–00–46). 

9See, e.g., Securities Exchange Act Release No. 

52178 (July 29, 2005), 70 FR 46244 (August 9, 2005) 

(SR–NYSE–2005–41) (approving listing of iShares 

MSCI EAFE Growth Fund and iShares MSCI EAFE 

Value Fund); Securities Exchange Act Release No. 

54458 (September 15, 2006), 71 FR 55248 

(September 21, 2006) (SR–NYSE–2006–60) 

(approving listing of iShares S&P Global Index 

Funds). 

10See, e.g., Securities Exchange Act Release No. 

51563 (April 15, 2005), 70 FR 21257 (April 25, 

2005) (SR–Amex–2005–001); Securities Exchange 

Act Release No. 52204 (August 3, 2005), 70 FR 

46559 (August 10, 2005) (SR–PCX–2005–63). 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to revise 

Section 703.16 of the NYSE Listed 

Company Manual (‘‘Manual’’) to include 

generic listing standards for series of 

Investment Company Units (‘‘ICUs’’) 

(which are also referred to herein as 

‘‘exchange-traded funds’’ or ‘‘ETFs’’) 

that are based on international or global 

indexes, or on indexes described in 

rules previously approved by the 

Commission under Section 19(b)(2) of 

the Exchange Act 3 for the trading of 

ETFs, options, or other index-based 

securities. This proposal would enable 

the Exchange to list and trade ETFs 

pursuant to Rule 19b–4(e) under the 

Exchange Act 4 if each of the conditions 

set forth in Section 703.16 of the 

Manual is satisfied. Rule 19b–4(e) 

provides that the listing and trading of 

a new derivative securities product by a 

self-regulatory organization (‘‘SRO’’) 

shall not be deemed a proposed rule 

change, pursuant to paragraph (c)(1) of 

Rule 19b–4, if the Commission has 

approved, pursuant to Section 19(b) of 

the Exchange Act, the SRO’s trading 

rules, procedures, and listing standards 

for the product class that would include 

the new derivatives securities product, 

and the SRO has a surveillance program 

for the product class.5

Exchange-Traded Funds 

NYSE Rule 1100 and Section 703.16 

of the Manual provide standards for 

listing ICUs, which are securities issued 

by a unit investment trust, an open-end 

management investment company (i.e., 

an open-end mutual fund), or similar 

entity based on a portfolio of stocks or 

fixed income securities that seeks to 

provide investment results that 

correspond generally to the price and 

yield performance of a specified foreign 

or domestic stock index or fixed income 

securities index. Pursuant to Section 

703.16 of the Manual, an ICU eligible for 

listing on the Exchange must be issued 

in a specified aggregate number in 

return for a deposit of specified 

securities and/or a cash amount, with a 

value equal to the next determined net 

asset value (‘‘NAV’’). When aggregated 

in the same specified minimum number, 

the ICU must be redeemable by the 

issuer for the securities and/or cash, 

with a value equal to the next 

determined NAV. The NAV is 

calculated once a day after the close of 

the regular trading day. 

To meet the investment objective of 

providing investment returns that 

correspond to the price and the 

dividend and yield performance of the 

underlying index, an ETF may use a 

‘‘replication’’ strategy or a 

‘‘representative sampling’’ strategy with 

respect to the ETF portfolio.6 An ETF 

using a replication strategy will invest 

in each stock of the underlying index in 

about the same proportion as that stock 

is represented in the index itself. An 

ETF using a representative sampling 

strategy will generally invest in a 

significant number but not all of the 

component securities of the underlying 

index, and will hold stocks that, in the 

aggregate, are intended to approximate 

the full index in terms of key 

characteristics, such as price/earnings 

ratio, earnings growth, and dividend 

yield. 

In addition, an ETF portfolio may be 

adjusted in accordance with changes in 

the composition of the underlying index 

or to maintain compliance with 

requirements applicable to a regulated 

investment company under the Internal 

Revenue Code (‘‘IRC’’).7

Generic Listing Standards for ExchangeTraded Funds 

The Commission has previously 

approved generic listing standards for 

ETFs based on indexes that consist of 

stocks listed on U.S. exchanges.8 In 

general, the proposed criteria for the 

underlying component securities in the 

international and global indexes are 

similar to those for the domestic 

indexes, but with modifications as 

appropriate for the issues and risks 

associated with non-U.S. securities. 

In addition, the Commission has 

previously approved rules governing the 

listing and trading of ETFs based on 

international indexes—those based on 

non-U.S. component stocks—as well as 

global indexes—those based on nonU.S. and U.S. component stocks.9

The Commission also has approved 

rules of other exchanges that permit the 

listing pursuant to Rule 19b–4(e) of 

index-based derivatives where the 

Commission had previously approved 

rules contemplating the trading of 

specified index-based derivatives on the 

same index, on the condition that all of 

the standards set forth in those orders, 

in particular with respect to 

surveillance sharing agreements, 

continued to be satisfied.10

In approving ETFs for Exchange 

trading, the Commission thoroughly 

considered the structure of the ETFs, 

their usefulness to investors and to the 

markets, and NYSE rules that govern 

their trading. The Exchange believes 

that adopting additional generic listing 

standards for these securities and 

applying Rule 19b–4(e) should fulfill 

the intended objective of that rule by 

allowing those ETFs that satisfy the 

proposed generic listing standards to 

commence trading, without the need for 

the public comment period and 

Commission approval. The proposed 

rules have the potential to reduce the 

time frame for bringing ETFs to market, 

thereby reducing the burdens on issuers 

and other market participants. The 

failure of a particular index to comply 

with the proposed generic listing 

standards under Rule 19b–4(e) would 


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Federal Register / Vol. 72, No. 15 / Wednesday, January 24, 2007 / Notices 3181 

11See e.g., NYSE Rule 1100. 

12 15 U.S.C. 78l(b) or (g). 

not, however, preclude the Exchange 

from submitting a separate filing 

pursuant to Section 19(b)(2) requesting 

Commission approval to list and trade a 

particular ETF. 

Requirements for Listing and Trading 

ETFs Based on International and Global 

Indexes 

Exchange-traded funds listed 

pursuant to these generic listing 

standards would be traded, in all other 

respects, under the Exchange’s existing 

trading rules and procedures that apply 

to ETFs and would be covered under the 

Exchange’s surveillance program for 

ETFs.11

To list an ETF pursuant to the 

proposed generic listing standards for 

international and global indexes, the 

index underlying an ETF must satisfy 

all the conditions contained in proposed 

Section 703.16(C)(2)(b) of the Manual. 

As with the existing generic standards 

for ETFs based on domestic indexes, 

these generic listing standards are 

intended to ensure that stocks with 

substantial market capitalization and 

trading volume account for a substantial 

portion of the weight of an index or 

portfolio. While the standards in this 

proposal are based on the standards 

contained in the current generic listing 

standards for ETFs based on domestic 

indexes, they have been adapted as 

appropriate to apply to international 

and global indexes. 

As proposed, Section 703.16(B) of the 

Manual would be amended to include 

definitions of U.S. Component Stock 

and Non-U.S. Component Stock. These 

new definitions would provide the basis 

for the standards for indexes with either 

domestic or international stocks, or a 

combination of both. A ‘‘Non-U.S. 

Component Stock’’ would mean an 

equity security that is not registered 

under Section 12(b) or 12(g) of the 

Exchange Act,12 and that is issued by an 

entity that (1) is not organized, 

domiciled, or incorporated in the 

United States, and (2) is an operating 

company (including a real estate 

investment trust (REIT) or income trust, 

but excluding an investment trust, unit 

trust, mutual fund, or derivative). This 

definition is designed to create a 

category of component stocks that are 

issued by companies that are not based 

in the United States, are not subject to 

oversight through Commission 

registration, and would include 

sponsored GDRs and EDRs. A ‘‘U.S. 

Component Stock’’ would mean an 

equity security that is registered under 

Section 12(b) or 12(g) of the Exchange 

Act or an ADR the underlying equity 

security of which is registered under 

Section 12(b) or 12(g) of the Exchange 

Act. An ADR with an underlying equity 

security that is registered pursuant to 

the Exchange Act is considered a U.S. 

Component Stock because the issuer of 

that security is subject to Commission 

jurisdiction and must comply with 

Commission rules. 

The Exchange proposes that, to list an 

ICU based on an international or global 

index or portfolio pursuant to the 

generic listing standards, such index or 

portfolio must meet the following 

criteria: 

• Component stocks that in the 

aggregate account for at least 90% of the 

weight of the index or portfolio each 

must have a minimum market value of 

at least $100 million (Section 

703.16(C)(2)(b)(i)); 

• Component stocks representing at 

least 90% of the weight of the index or 

portfolio each must have a minimum 

worldwide monthly trading volume 

during each of the last six months of at 

least 250,000 shares (Section 

703.16(C)(2)(b)(ii)); 

• The most heavily weighted 

component stock may not exceed 25% 

of the weight of the index or portfolio 

and the five most heavily weighted 

component stocks may not exceed 60% 

of the weight of the index or portfolio 

(Section 703.16(C)(2)(b)(iii)); 

• The index or portfolio shall include 

a minimum of 20 component stocks 

(Section 703.16(C)(2)(b)(iv)); and 

• Each U.S. Component Stock must 

be listed on a national securities 

exchange and an NMS stock as defined 

in Rule 600 of Regulation NMS under 

the Exchange Act, and each Non-U.S. 

Component Stock must be listed on an 

exchange that has last-sale reporting 

(Section 703.16(C)(2)(b)(v)). 

The Exchange believes that the 

proposed standards are reasonable for 

international and global indexes, and, 

when applied in conjunction with the 

other listing requirements, would result 

in the listing and trading on the 

Exchange of ETFs that are sufficiently 

broad-based in scope and not readily 

susceptible to manipulation. The 

Exchange also believes that the 

proposed standards would result in 

ETFs that are adequately diversified in 

weighting for any single security or 

small group of securities to significantly 

reduce concerns that trading in an ETF 

based on an international or global 

index could become a surrogate for 

trading in unregistered securities. 

The Exchange further notes that, 

while these standards are similar to 

those for indexes that include only U.S. 

Component Stocks, they differ in certain 

important respects and are generally 

more restrictive, reflecting greater 

concerns over portfolio diversification 

with respect to ETFs investing in 

components that are not individually 

registered with the Commission. First, 

in the proposed standards, component 

stocks that in the aggregate account for 

at least 90% of the weight of the index 

or portfolio each shall have a minimum 

market value of at least $100 million, 

compared to a minimum market value 

of at least $75 million for indexes with 

only U.S. Component Stocks. (Market 

value is calculated by multiplying the 

total shares outstanding by the price per 

share of the component stock.) Second, 

in the proposed standards, the most 

heavily weighted component stock 

cannot exceed 25% of the weight of the 

index or portfolio, in contrast to a 30% 

standard for an index or portfolio 

comprised of only U.S. Component 

Stocks. Third, in the proposed 

standards, the five most heavily 

weighted component stocks shall not 

exceed 60% of the weight of the index 

or portfolio, compared to a 65% 

standard for indexes comprised of only 

U.S. Component Stocks. Fourth, the 

minimum number of stocks in the 

proposed standards is 20, in contrast to 

a minimum of 13 in the standards for an 

index or portfolio with only U.S. 

Component Stocks. Finally, the 

proposed standards require that each 

Non-U.S. Component Stock included in 

the index or portfolio be listed and 

traded on an exchange that has last-sale 

reporting. 

The Exchange also proposes to modify 

Section 703.16(C)(3) to require that the 

index value for an ETF listed pursuant 

to the proposed standards for 

international and global indexes be 

widely disseminated by one or more 

major market data vendors at least every 

60 seconds during the time when the 

ETF shares trade on the Exchange. If the 

index value does not change during 

some or all of the period when trading 

is occurring on the Exchange, the last 

official calculated index value must 

remain available throughout Exchange 

trading hours. In contrast, the index 

value for an ETF listed pursuant to the 

existing standards for domestic indexes 

must be disseminated at least every 15 

seconds during the trading day. This 

modification reflects limitations, in 

some instances, on the frequency of 

intra-day trading information with 

respect to Non-U.S. Component Stocks 

and that, in many cases, trading hours 

for overseas markets overlap only in 

part, or not at all, with Exchange trading 

hours. 

In addition, Section 703.16(C)(3) 

would be modified to define the term 


pwalker on PROD1PC71 with NOTICES
3182 Federal Register / Vol. 72, No. 15 / Wednesday, January 24, 2007 / Notices 

13 15 U.S.C. 80a et seq. 

14 15 U.S.C. 77a et seq. 

15For example, rules of the American Stock 

Exchange LLC (‘‘Amex’’) and NYSE Arca, Inc. 

provide that one element of the standards for listing 

Index-Linked Securities pursuant to Rule 19b–4(e) 

is the previous review and approval for trading of 

options or other derivatives by the Commission 

under Section 19(b)(2) of the Exchange Act and 

rules thereunder. See supra note 10. 

16 15 U.S.C. 78f. 

17 15 U.S.C. 78f(b)(5). 

‘‘Intraday Indicative Value’’ (‘‘IIV’’) as 

the estimate, updated at least every 15 

seconds, of the value of a share of each 

ETF, for ease of reference. The Exchange 

also proposes to clarify in Section 

703.16(C)(3) that the IIV would be 

updated during the hours the ETF 

shares trade on the Exchange to reflect 

changes in the exchange rate between 

the U.S. dollar and the currency in 

which any component stock is 

denominated. 

The Exchange is also proposing to add 

a Section 703.16(C)(6) regarding the 

creation and redemption process for 

ETFs and compliance with federal 

securities laws for, in particular, ETFs 

listed pursuant to the new generic 

listing standards. This new subsection 

would apply to ICUs listed pursuant to 

Section 703.16(C)(2)(b) or (c). It would 

require that the statutory prospectus or 

the application for exemption from 

provisions of the Investment Company 

Act of 1940 13 for the ETF being listed 

pursuant to these new standards must 

state that the ETF must comply with the 

federal securities laws in accepting 

securities for deposits and satisfying 

redemptions with redemption 

securities, including that the securities 

accepted for deposits and the securities 

used to satisfy redemption requests are 

sold in transactions that would be 

exempt from registration under the 

Securities Act of 1933.14

The Commission has approved 

generic standards providing for the 

listing pursuant to Rule 19b–4(e) of 

other derivative products based on 

indexes described in rules previously 

approved by the Commission under 

Section 19(b)(2) of the Exchange Act. 

The Exchange proposes to include in 

the generic standards for the listing of 

ICUs indexes that have been approved 

by the Commission in connection with 

the listing of options, ICUs, IndexLinked Exchangeable Notes, or IndexLinked Securities. The Exchange 

believes that the application of that 

standard to ETFs is appropriate because 

the underlying index would have been 

subject to detailed and specific 

Commission review in the context of the 

approval of listing of those other 

derivatives.15

This new generic standard would be 

limited to stock indexes and would 

require that each component stock be 

either: (1) a U.S. Component Stock that 

is listed on a national securities 

exchange and is an NMS stock as 

defined in Rule 600 of Regulation NMS; 

or (2) a Non-U.S. Component Stock that 

is listed and traded on an exchange that 

has last-sale reporting. 

The Exchange is also proposing to 

include additional continued listing 

standards relating to ETFs. The 

Exchange would commence delisting 

proceedings if the value of the index or 

portfolio of securities on which the ETF 

is based is no longer calculated or 

disseminated. 

The Exchange proposes to modify the 

Original Unit Listing Standards in 

Section 703.16(A) of the Manual to 

formalize in the rules existing best 

practices for providing equal access to 

material information about the value of 

ETFs. Pursuant to proposed Section 

703.16(A)(6), prior to approving an ETF 

for listing, the Exchange would obtain a 

representation from the ETF issuer that 

the NAV per share would be calculated 

daily and made available to all market 

participants at the same time. 

Proposed Rule 1100(f) sets out the 

trading halt parameters for ETFs. In 

particular, proposed Rule 1100(f)(1) sets 

out that, where the Exchange is the 

listing market for an ICU, if the IIV or 

the index value applicable to that series 

of ICUs is not being disseminated as 

required, the Exchange may halt trading 

during the day in which the 

interruption to the dissemination of the 

IIV or the index value occurs. If the 

interruption to the dissemination of the 

IIV or the index value persists past the 

trading day in which it occurred, the 

Exchange would halt trading no later 

than the beginning of the trading day 

following the interruption. 

Proposed Rule 1100(f)(2) provides 

that, for series of ICUs admitted to 

dealings by the Exchange on the basis of 

unlisted trading privileges (‘‘UTP’’), 

during the hours for trading of ICUs on 

the Exchange, if a temporary 

interruption occurs in the calculation or 

wide dissemination of the applicable IIV 

or value of the underlying index by a 

major market data vendor and the listing 

market halts trading in a series of ICUs, 

the Exchange, upon notification by the 

listing market of such halt due to such 

temporary interruption, also shall 

immediately halt trading in the series of 

ICUs on the Exchange. If the IIV or the 

value of the underlying index continues 

not to be calculated or widely available 

as of the commencement of trading on 

the Exchange on the next business day, 

the Exchange shall not commence 

trading of the series of ICUs that day. If 

an interruption in the calculation or 

wide dissemination of the IIV or the 

value of the underlying index continues, 

the Exchange may resume trading in the 

series of ICUs only if calculation and 

wide dissemination of the IIV or the 

value of the underlying index resumes 

or trading in such series resumes in the 

listing market. 

The Exchange is proposing other 

minor and clarifying changes to Section 

703.16. Section 703.16(C)(2)(a)(v) has 

been modified to reflect the adoption of 

Regulation NMS. Proposed Section 

703.16(C)(4)(c) has been added to make 

sure that an entity that advises index 

providers or calculators and related 

entities has in place procedures 

designed to prevent the use and 

dissemination of material non-public 

information regarding the index 

underlying the ETF. 

The Exchange represents that its 

surveillance procedures are adequate to 

properly monitor the trading of ICUs 

listed pursuant to the proposed new 

listing standards or traded pursuant to 

UTP. In addition, the Exchange has a 

general policy prohibiting the 

dissemination of material, non-public 

information by its employees. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

Section 6 of the Exchange Act 16 in 

general and furthers the objectives of 

Section 6(b)(5) 17 in particular in that it 

is designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, 

and to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change would impose 

any burden on competition. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange did not receive any 

written comments on the proposed rule 

change. 

III. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 


pwalker on PROD1PC71 with NOTICES
Federal Register / Vol. 72, No. 15 / Wednesday, January 24, 2007 / Notices 3183 

18 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). 

19 15 U.S.C. 78f(b)(5). 

20 15 U.S.C. 78s(b)(1). 

21 17 CFR 240.19b–4. 

22The Commission notes, however, that the 

failure of a particular ETF to meet these generic 

listing standards would not preclude the Exchange 

from submitting a separate proposed rule change to 

list and trade the ETF. 

23See Securities Exchange Act Release No. 54739 

(November 9, 2006), 71 FR 66993 (November 17, 

2006) (SR–Amex–2006–78) (approving generic 

listing standards for series of portfolio depositary 

receipts and index fund shares based on 

international or global indexes); Securities 

Exchange Act Release No. 55018 (December 28, 

2006), 72 FR 1040 (January 9, 2007) (SR–Amex–

2006–109) (making clarifying changes to the generic 

listing standards set forth in SR–Amex–2006–78). 

including whether the proposed rule 

change is consistent with the Exchange 

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 rulecomments@sec.gov. Please include File 

Number SR–NYSE–2006–101 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–NYSE–2006–101. 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 NYSE. 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–NYSE–2006–101 and 

should be submitted on or before 

February 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, as 

amended, is consistent with the 

requirements of the Exchange Act and 

the rules and regulations thereunder 

applicable to a national securities 

exchange.18 In particular, the 

Commission finds that the proposal is 

consistent with Section 6(b)(5) of the 

Exchange Act 19 in that it is designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to foster 

cooperation and coordination with 

persons engaged in facilitating 

transactions in securities, 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. 

Currently, the Exchange must file a 

proposed rule change with the 

Commission pursuant to Section 

19(b)(1) of the Exchange Act 20 and Rule 

19b–4 thereunder 21 to list and trade any 

ETF based on an index comprised of 

foreign securities. The Exchange also 

must file a proposed rule change to list 

and trade ETFs based on indexes or 

portfolios previously approved by the 

Commission as underlying benchmarks 

for derivative securities. However, Rule 

19b–4(e) provides that the listing and 

trading of a new derivative securities 

product by an SRO will not be deemed 

a proposed rule change pursuant to Rule 

19b–4(c)(1) if the Commission has 

approved, pursuant to Section 19(b) of 

the Exchange Act, the SRO’s trading 

rules, procedures, and listing standards 

for the product class that would include 

the new derivative securities product, 

and the SRO has a surveillance program 

for the product class. The Exchange’s 

proposed rules for the listing and 

trading of ETFs pursuant to Rule 19b–

4(e) based on (1) certain indexes with 

components that include foreign 

securities or (2) indexes or portfolios 

previously approved by the Commission 

as underlying benchmarks for derivative 

securities fulfill these requirements. Use 

of Rule 19b–4(e) by NYSE to list and 

trade such ETFs should promote 

competition, reduce burdens on issuers 

and other market participants, and make 

such ETFs available to investors more 

quickly.22

The Commission previously has 

approved generic listing standards for 

another exchange, Amex, that are 

substantially similar to those proposed 

here by NYSE.23 This proposal does not 

appear to raise any novel regulatory 

issues. Therefore, the Commission finds 

that NYSE’s proposal is consistent with 

the Exchange Act on the same basis that 

it approved Amex’s generic listing 

standards for ETFs based on 

international or global indexes or on 

indexes or portfolios previously 

approved by the Commission as 

underlying benchmarks for derivative 

securities. 

Proposed Section 703.16(C)(2)(b) of 

the Manual establishes standards for the 

composition of an index or portfolio 

underlying an ETF. These requirements 

are designed, among other things, to 

require that components of an index or 

portfolio underlying the ETF are 

adequately capitalized and sufficiently 

liquid, and that no one security 

dominates the index. The Commission 

believes that, taken together, these 

standards are reasonably designed to 

ensure that securities with substantial 

market capitalization and trading 

volume account for a substantial portion 

of any underlying index or portfolio, 

and that when applied in conjunction 

with the other applicable listing 

requirements, will permit the listing and 

trading only of ETFs that are sufficiently 

broad-based in scope to minimize 

potential manipulation. The 

Commission further believes that the 

proposed listing standards are 

reasonably designed to preclude NYSE 

from listing and trading ETFs that might 

be used as surrogate for trading in 

unregistered securities. The requirement 

that each component security 

underlying an ETF be an NMS stock (in 

the case of a U.S. Component Stock) or 

listed on an exchange and subject to 

last-sale reporting (in the case of a NonU.S. Component Stock) should 

contribute to the transparency of the 

market for these ETFs. 

The proposed generic listing 

standards also will permit NYSE to list 

and trade an ETF if the Commission has 

previously approved an SRO rule 

change that contemplates listing and 

trading a derivative product based on 

the same underlying index. NYSE 

would be able to rely on that earlier 

approval order, provided that (1) the 

securities comprising the underlying 

index consist of U.S. Component Stocks 

or Non-U.S. Component Stocks as set 


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3184 Federal Register / Vol. 72, No. 15 / Wednesday, January 24, 2007 / Notices 

24 15 U.S.C. 78k–1(a)(1)(C)(iii). 

25See proposed Section 703.16(C)(3) of the 

Manual. If an index or portfolio value does not 

change for some of the time that the ETF trades on 

the Exchange, the last official calculated value must 

remain available throughout Exchange trading 

hours. 

26See id. 

27See proposed Section 703.16(A)(6) of the 

Manual. 

28See Securities Exchange Act Release No. 54997 

(December 21, 2006), 71 FR 78501 (December 29, 

2006) (SR–NYSEArca–2006–77). 

29See supra note 23. 

30 15 U.S.C. 78s(b)(2). 

31 Id. 

32 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 54912 

(December 11, 2006), 71 FR 75601. 

4See Securities Exchange Act Release No. 54911 

(December 11, 2006), 71 FR 75603 (December 15, 

2006) (notice of filing and immediate effectiveness 

of SR–NYSE–2006–108). 

5See Exchange Act Release No. 54856 (December 

1, 2006); 71 FR 71215 (December 8, 2006) (SR–

NYSE–2006–106). 

forth in Section 703.16(B) of the Manual 

and (2) NYSE complies with the 

commitments undertaken by the other 

SRO set forth in the prior order, 

including any surveillance-sharing 

arrangements with a foreign market. 

The Commission believes that NYSE’s 

proposal is consistent with Section 

11A(a)(1)(C)(iii) of the Exchange Act,24

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. The Exchange’s proposal also 

requires the value of the index or 

portfolio underlying an ETF based on a 

global or international index to be 

disseminated at least once every 60 

seconds during Exchange trading 

hours.25 In addition, an IIV, which 

represents an estimate of the value of a 

share of each ETF, must be updated and 

disseminated at least once every 15 

seconds during the time an ETF trades 

on the Exchange.26 The IIV will be 

updated to reflect changes in the 

exchange rate between the U.S. dollar 

and the currency in which any index or 

portfolio component stock is 

denominated. In the event that an 

underlying index or portfolio value is 

no longer calculated or disseminated, 

the Exchange has represented that it 

would commence delisting proceedings 

for the associated ETF. Furthermore, the 

issuer of an ETF listed under the 

proposed rules will be required to 

represent that it will calculate the NAV 

and make it available daily to all market 

participants at the same time.27

The Exchange’s trading halt rules are 

reasonably designed to prevent trading 

in an ETF when transparency cannot be 

assured. Proposed NYSE Rule 1100(f)(1) 

provides that, when the Exchange is the 

listing market, if the IIV or index value 

applicable to an ETF is not 

disseminated as required, the Exchange 

may halt trading during the day in 

which the interruption occurs. If the 

interruption continues, then the 

Exchange will halt trading no later than 

the beginning of the next trading day. In 

addition, proposed NYSE Rule 

1100(f)(2) sets forth trading halt 

procedures when the Exchange trades 

the ETF pursuant to UTP. This proposed 

rule is substantially similar to that 

recently adopted by another exchange, 

NYSEArca.28

In approving this proposal, the 

Commission relied on NYSE’s 

representation that its surveillance 

procedures are adequate to properly 

monitor the trading of ICUs listed 

pursuant to the proposed new listing 

standards or traded pursuant to unlisted 

trading privileges. This approval is 

conditioned on the continuing accuracy 

of that representation. 

Acceleration 

The Commission finds good cause for 

approving the proposed rule change, as 

amended, prior to the 30th day after the 

date of publication of the notice of filing 

thereof in the Federal Register. The 

Commission notes that NYSE’s proposal 

is substantially similar to an Amex 

proposal that has been approved by the 

Commission.29 The Commission does 

not believe that NYSE’s proposal raises 

any novel regulatory issues and, 

therefore, that good cause exists for 

approving the filing before the 

conclusion of a notice-and-comment 

period. Accelerated approval of the 

proposal will expedite the listing and 

trading of additional ETFs by the 

Exchange, subject to consistent and 

reasonable standards. Therefore, the 

Commission finds good cause, 

consistent with Section 19(b)(2) of the 

Exchange Act,30 to approve the 

proposed rule change, as amended, on 

an accelerated basis. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,31

that the proposed rule change (SR–

NYSE–2006–101), as amended, be, and 

it hereby is, approved on an accelerated 

basis. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.32

Nancy M. Morris, 

Secretary. 

[FR Doc. E7–956 Filed 1–23–07; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55120; File No. SR–NYSE–

2006–110] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Order 

Approving a Proposed Rule Change 

Relating to Its Linkage Order Fee 

January 18, 2007. 

On December 6, 2006, the New York 

Stock Exchange LLC (‘‘NYSE’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and 

Rule 19b–4 thereunder,2 a proposal to 

retroactively apply an increase in the fee 

(‘‘Linkage Order Fee’’) it charges its 

member organizations in connection 

with orders in equities executed in 

another market pursuant to the Plan for 

the Purpose of Creating and Operating 

an Intermarket Communications 

Linkage (‘‘Linkage Plan’’). The proposal 

was published for comment in the 

Federal Register on December 15, 

2006.3 The Commission received no 

comments on the proposal. This order 

approves the proposed rule change. 

The Exchange proposes to 

retroactively apply, as of December 1, 

2006, an increase from $0.00025 to 

$0.000275 per share in the Linkage 

Order Fee it charges its member 

organizations in connection with orders 

in equities executed in another market 

pursuant to the Linkage Plan. This 

increase in the Linkage Order Fee 

became effective on Monday, December 

4, 2006, pursuant to a previous rule 

change submitted by the Exchange.4 The 

Linkage Order Fee was increased to 

$0.000275 to set it at the same level as 

the regular equity transaction fee, which 

was increased to that level as of 

December 1, 2006.5 The current filing 

simply applies the revised Linkage 

Order Fee to transactions that occurred 

on December 1, 2006, which is the only 

business day with respect to which the 

Linkage Order Fee and the regular 

equity transaction fee were not 

harmonized by the previous filing. The 

Exchange wishes to harmonize the 

Linkage Order Fee payable on 


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