29022 Federal Register / Vol. 72, No. 99 / Wednesday, May 23, 2007 / Notices 

15 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Amendment No. 1 replaced and superseded the 

original filing in its entirety. 

4 17 CFR 240.19b–4(e). 

5 17 CFR 240.19b–4(c)(1). 

6 15 U.S.C. 78s(b). 

7When 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 product. See 17 CFR 

240.19b–4(e)(2)(ii). 

8For 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, (i) 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 if the ETF’s assets and not greater than 

10% of the outstanding voting securities of such 

issuer; and (ii) 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 business (other than U.S. 

government securities or the securities of other 

regulated investment companies). 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.15

J. Lynn Taylor, 

Assistant Secretary. 

[FR Doc. E7–9876 Filed 5–22–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55780; File No. SR–NYSE–

2007–37] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing of Proposed Rule Change and 

Amendment No. 1 Thereto Relating to 

Generic Listing Standards for Series of 

Investment Company Units Based on 

Fixed Income Indexes and Order 

Granting Accelerated Approval of 

Proposed Rule Change as Amended 

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 March 29, 

2007, 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 prepared substantially by the 

Exchange. On May 9, 2007, the 

Exchange filed Amendment No. 1.3 This 

order provides notice of the proposed 

rule change as modified by Amendment 

No. 1 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 Exchange proposes to revise 

Section 703.16 of the NYSE Listed 

Company Manual to include generic 

listing standards for series of Investment 

Company Units (‘‘ICUs’’) that are based 

on indexes or portfolios consisting of 

fixed income securities (‘‘Fixed Income 

Indexes’’) or on composite indexes 

consisting of equity and fixed income 

indexes or indexes or portfolios 

consisting of both equity and fixed 

income securities (collectively, 

‘‘Combination Indexes’’). 

The text of the proposed rule change 

is available at the NYSE, at the 

Commission’s Public Reference Room, 

and on the Exchange’s Web site at 

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, 

NYSE 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 the 

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 

ICUs (also referred to herein as 

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

that are based on Fixed Income Indexes 

or on Combination Indexes. This 

proposal will enable the Exchange to list 

and trade ETFs pursuant to Rule 19b–

4(e) under the 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 shall not be 

deemed a proposed rule change, 

pursuant to paragraph (c)(1) of Rule 

19b–4,5 if the Commission has 

approved, pursuant to Section 19(b) of 

the Act,6 the self-regulatory 

organization’s trading rules, procedures, 

and listing standards for the product 

class that would include the new 

derivatives securities product, and the 

self-regulatory organization has a 

surveillance program for the product 

class.7

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 

(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, ICUs 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, 

ICUs 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, 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. An ETF using a replication 

strategy will invest in each security 

found in the underlying index in about 

the same proportion as that security is 

represented in the index itself. An ETF 

using a representative sampling strategy 

will generally invest in a significant 

number, but perhaps not all, of the 

component securities of the underlying 

index, and will hold securities that, in 

the aggregate, are intended to 

approximate the full index in terms of 

certain key characteristics. In the 

context of a Fixed Income Index, such 

characteristics may include liquidity, 

duration, maturity, and 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’’).8


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Federal Register / Vol. 72, No. 99 / Wednesday, May 23, 2007 / Notices 29023 

9 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 (‘‘UTP’’), of ICUs based on U.S. 

stock indexes 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). In 

2007, the Commission also approved the 

Exchange’s generic listing standards for the listing 

and trading, or the trading pursuant to UTP, of ICUs 

based on foreign or global stock indexes. See 

Securities Exchange Act Release No. 55113 (January 

17, 2007), 72 FR 3179 (January 24, 2007) (SR–

NYSE–2006–101). 

10See Securities Exchange Act Release No. 46299 

(August 1, 2002), 67 FR 51907 (August 9, 2002) 

(SR–NYSE–2002–26). 

11See, e.g., Section 703.22 of the Manual and 

Securities Exchange Act Release No. 55687 (May 1, 

2007), 72 FR 25824 (May 7, 2007) (SR–NYSE–2007–

27); NYSE Arca Equities Rule 5.2(j)(6) and 

Securities Exchange Act Release No. 52204 (August 

3, 2005), 70 FR 46559 (August 10, 2005) (SR–PCX–

2005–63) (approving generic listing standards for 

index-linked securities). 

12See, e.g., NYSE Rule 1100. 

13See Securities Exchange Act Release No. 54106 

(July 6, 2006), 71 FR 39534 (July 13, 2006) (File No. 

S7–07–06) (the ‘‘Joint Rules’’). 

14Trust-preferred securities are undated 

cumulative securities issued from a special purpose 

trust in which a bank or bank holding company 

owns all of the common securities. The trust’s sole 

asset is a subordinated note issued by the bank or 

bank holding company. Trust-preferred securities 

are treated as debt for tax purposes so that the 

distributions or dividends paid are a tax-deductible 

interest expense. 

15Supranational debt represents the debt of 

international organizations such as the World Bank, 

the International Monetary Fund, regional 

multilateral development banks, and multilateral 

financial institutions. Examples of regional 

multilateral development banks include the African 

Development Bank, Asian Development Bank, 

European Bank for Reconstruction and 

Development, and the Inter-American Development 

Bank. In addition, examples of multilateral 

financial institutions include the European 

Investment Bank and the International Fund for 

Agricultural Development. 

16The Exchange notes that, under the Section 

3(a)(11) of the Act, 15 U.S.C. 78c(a)(11), a 

convertible security is defined as an equity security. 

However, for the purpose of the proposed generic 

listing criteria, NYSE believes that defining a 

convertible security (prior to its conversion) as a 

Fixed Income Security is consistent with the 

objectives and intention of the generic listing 

standards for fixed-income-based ETFs as well as 

the Act. 

Generic Listing Standards for ExchangeTraded Funds 

The Exchange notes that the 

Commission has previously approved 

generic listing standards for ETFs based 

on indexes that consist of stocks listed 

on U.S. exchanges as well as on indexes 

consisting of foreign stocks or both U.S. 

and foreign stocks.9 In addition, the 

Commission has previously approved 

the listing and trading of ETFs based on 

fixed income securities indexes.10

The Exchange notes that the 

Commission has also approved listing 

standards for other index-based 

derivatives that permit the listing—

pursuant to Rule 19b–4(e)—of such 

securities where the Commission had 

previously approved the trading of 

specified index-based derivatives on the 

same index, on the condition that all of 

the standards set forth in the original 

order are satisfied by the exchange 

employing generic listing standards.11

The Exchange believes that adopting 

additional generic listing standards for 

ETFs based on Fixed Income Indexes 

and Combination Indexes 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 

individualized 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 

ETF to comply with the proposed 

generic listing standards would 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. 

Fixed Income and Combination Index 

ETFs 

Requirements for Listing and Trading 

Based on Fixed Income Indexes 

Exchange-traded funds listed 

pursuant to these generic standards 

would be traded in all other respects 

under the Exchange’s existing trading 

rules and procedures that apply to all 

Exchange-listed securities, including 

ETFs, and would be covered under the 

Exchange’s surveillance programs for 

equities.12

In order to list an ETF pursuant to the 

proposed generic listing standards for 

Fixed Income Indexes, the index 

underlying the ETF must satisfy all the 

conditions contained in proposed 

Section 703.16(D) of the Manual. As 

with existing generic listing standards 

for ETFs based on domestic and 

international or global indexes, the 

proposed generic listing standards are 

intended to ensure that fixed income 

securities with substantial market 

distribution and liquidity account for a 

substantial portion of the weight of an 

index or portfolio. While the standards 

in this proposal are loosely based on the 

standards contained in Commission and 

Commodity Futures Trading 

Commission (‘‘CFTC’’) rules regarding 

the application of the definition of 

narrow-based security index to debt 

security indexes 13 as well as existing 

fixed income ETFs, they have been 

adapted as appropriate to apply 

generally to Fixed Income Indexes for 

ETFs. 

Fixed Income Securities 

As proposed, Section 703.16(B)(3) 

defines the term ‘‘Fixed Income 

Securities’’ to include notes, bonds 

(including convertible bonds), 

debentures, or evidence of indebtedness 

that include, but are not limited to, U.S. 

Department of Treasury securities 

(‘‘Treasury Securities’’), governmentsponsored entity securities (‘‘GSE 

Securities’’), municipal securities, trustpreferred securities,14 supranational 

debt,15 and debt of a foreign country or 

subdivision thereof. This new definition 

is designed to create a category of ETFs 

based on Fixed Income Indexes that 

may be listed and traded pursuant to 

Rule 19b–4(e) under the Act. 

For purposes of the proposed 

definition, a convertible bond is deemed 

to be a Fixed Income Security up until 

the time that it is converted into its 

underlying common or preferred 

stock.16 Once converted, the equity 

security may no longer continue as a 

component of a Fixed Income Index 

under the proposed rules, and 

accordingly, would be removed from 

such index. 

The Exchange proposes that, to list a 

series of ICUs based on a Fixed Income 

Index pursuant to the generic standards, 

the index must meet the following 

criteria: 

• The index or portfolio must consist 

of Fixed Income Securities; 

• Components that in aggregate 

account for at least 75% of the weight 

of the index or portfolio must have a 

minimum original principal amount 

outstanding of $100 million or more; 

• No component Fixed Income 

Security (excluding a Treasury Security 

or GSE Security) represents more than 

30% of the weight of the index, and the 

five highest weighted component fixed 

income securities in the index do not in 

the aggregate account for more than 

65% of the weight of the index; 

• An underlying index or portfolio 

(excluding one consisting entirely of 

exempted securities) must include a 

minimum of 13 non-affiliated issuers; 

and 

• Component securities that in 

aggregate account for at least 90% of the 

weight of the index or portfolio must be 

either: 


pwalker on PROD1PC71 with NOTICES
29024 Federal Register / Vol. 72, No. 99 / Wednesday, May 23, 2007 / Notices 

17 15 U.S.C. 78m and 78o(d). 

18 15 U.S.C. 78c(a)(12). 

19See note 13 supra. 

20Rule 405 under the Securities Act of 1933, 17 

CFR 230.405, defines an affiliate as a person that 

directly, or indirectly through one or more 

intermediaries, controls or is controlled by, or is 

under common control with, such person. Control, 

for this purpose, is the possession, direct or 

indirect, of the power to direct or cause the 

direction of the management and policies of a 

person, whether through the ownership of voting 

securities, by contract, or otherwise. 

21 15 U.S.C. 78m and 78o(d). 

22 15 U.S.C. 78c(a)(12). 

23Cf. Joint Rules, 71 FR at 30538. 

• From issuers that are required to 

file reports pursuant to Sections 13 and 

15(d) of the Act; 17

• From issuers that have a worldwide 

market value of its outstanding common 

equity held by non-affiliates of $700 

million or more; 

• From issuers that have outstanding 

securities that are notes, bonds, 

debentures, or evidences of 

indebtedness having a total remaining 

principal amount of at least $1 billion; 

• Exempted securities, as defined in 

Section 3(a)(12) of the Act; 18 or 

• From issuers that are governments 

of foreign countries or political 

subdivisions of foreign countries. 

The Exchange believes that these 

proposed component criteria standards 

are reasonable for Fixed Income 

Indexes, and, when applied in 

conjunction with the other listing 

requirements, would result in ETFs that 

are sufficiently broad-based in scope. 

The Exchange notes that the proposed 

standards are similar to the standards 

set forth by the Commission and the 

CFTC in the Joint Rules as well as 

existing fixed-income-based ETFs. First, 

in the proposed standards, component 

Fixed Income Securities that in the 

aggregate account for at least 75% of the 

weight of the index or portfolio would 

have to have a minimum original 

principal amount outstanding of at least 

$100 million. Second, the proposed 

standards provide that the most heavily 

weighted component security cannot 

exceed 30% of the weight of the index 

or portfolio, consistent with the 

standard for U.S. equity ETFs set forth 

in Section 703.16(C)(2)(a)(iii). In 

addition, this standard is identical to 

the standard set forth by the 

Commission and the CFTC in the Joint 

Rules.19 Third, in the proposed 

standards, the five most heavily 

weighted component securities could 

not exceed 65% of the weight of the 

index or portfolio, consistent with the 

standard for U.S. equity ETFs set forth 

in Section 703.16(C)(2)(a)(iii) of the 

Manual as well as the Joint Rules. 

Fourth, the minimum number of fixed 

income securities (except for portfolios 

consisting entirely of exempted 

securities, such as Treasury Securities 

or GSE Securities) from unaffiliated 20

issuers in the proposed standards is 13, 

consistent with the standard for U.S. 

equity ETFs set forth in Section 

703.16(C)(2)(a)(iv) of the Manual and 

the Joint Rules. This requirement 

together with the diversification 

standards set forth above would provide 

assurance that the fixed income 

securities comprising an index would 

not be overly dependent on the price 

behavior of a single component or small 

group of components. 

Finally, the proposed standards 

would require that at least 90% of the 

weight of the index or portfolio must be 

either (i) from issuers that are required 

to file reports pursuant to Sections 13 

and 15(d) of the Act; 21 (ii) from issuers 

that have a worldwide market value of 

its outstanding common equity held by 

non-affiliates of $700 million or more; 

(iii) from issuers that have outstanding 

securities that are notes, bonds, 

debentures, or evidences of 

indebtedness having a total remaining 

principal amount of at least $1 billion; 

(iv) exempted securities, as defined in 

Section 3(a)(12) of the Act; 22 or (v) from 

issuers that are governments of foreign 

countries or political subdivisions of 

foreign countries. This proposed 

standard is consistent with a similar 

standard in the Joint Rules and is 

designed to ensure that the component 

fixed income securities have sufficient 

publicly available information. 

The proposed generic listing 

requirements for fixed income ETFs 

would not require that component 

securities in an underlying index have 

an investment-grade rating.23 In 

addition, the proposed requirements 

would not require a minimum trading 

volume, due to the lower trading 

volume that generally occurs in the 

fixed income markets as compared to 

the equity markets. 

The proposed standards would also 

provide that the Exchange could not 

approve a series of fixed income ETFs 

under the proposed generic listing 

requirements if such series seeks to 

provide investment results that either 

exceed the performance of a specified 

index by a specified multiple or that 

correspond to the inverse (opposite) of 

the performance of a specified index by 

a specified multiple. 

Requirements for Listing and Trading 

ETFs Based on Combination Indexes 

The Exchange also seeks to list and 

trade ETFs based on Combination 

Indexes. An ETF listed pursuant to the 

generic standards for Combination 

Indexes would be traded, in all other 

respects, under the Exchange’s existing 

trading rules and procedures that apply 

to all Exchange-listed securities, 

including ETFs, and would be covered 

under the Exchange’s surveillance 

program for equities. 

To list an ETF pursuant to the 

proposed generic listing standards for 

Combination Indexes, an index 

underlying an ICU must satisfy all the 

conditions contained in proposed 

Section 703.16(E). These generic listing 

standards are intended to ensure that 

securities with substantial market 

distribution and liquidity account for a 

substantial portion of the weight of both 

the equity and fixed income portions of 

an index or portfolio. 

Proposed Section 703.16(E) would 

provide that the Exchange may approve 

series of ICUs—based on a combination 

of indexes or a series of component 

securities representing the U.S. or 

domestic equity market, the 

international equity market, and the 

fixed income market—for listing and 

trading pursuant to Rule 19b–4(e) under 

the Act. The standards that an ETF 

would have to comply with are as 

follows: (i) Such portfolio or 

combination of indexes has been 

described in an exchange rule for the 

trading of options, ICUs, Index-Linked 

Exchangeable Notes, or Index-Linked 

Securities that has been approved by the 

Commission under Section 19(b)(2) of 

the Act, and all of the standards set 

forth in the original order are satisfied; 

or (ii) the equity portion and fixed 

income portion of the component 

securities separately meet the criteria set 

forth in Section 703.16(C) (equities) and 

proposed Section 703.16(D) (fixed 

income). 

The proposed standards would also 

provide that the Exchange could not 

approve a series of ETFs based on a 

Combination Index under the proposed 

generic listing requirements if such 

series seeks to provide investment 

results that either exceed the 

performance of a specified index by a 

specified multiple or that correspond to 

the inverse (opposite) of the 

performance of a specified index by a 

specified multiple. 

Index Methodology and 

Dissemination. The Exchange proposes 

to adopt Sections 703.16(D)(2) and (E)(1) 

to establish requirements for index 

methodology and dissemination in 

connection with Fixed Income and 

Combination Indexes. 

If a broker-dealer is responsible for 

maintaining (or has a role in 

maintaining) the underlying index, such 


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Federal Register / Vol. 72, No. 99 / Wednesday, May 23, 2007 / Notices 29025 

24See supra notes 10 and 11. 

25 15 U.S.C. 78f(b). 

26 15 U.S.C. 78f(b)(5). 

broker-dealer would be required to erect 

and maintain a ‘‘firewall,’’ in a form 

satisfactory to the Exchange, to prevent 

the flow of non-public information 

regarding the underlying index from the 

personnel involved in the development 

and maintenance of such index to others 

such as sales and trading personnel. 

With respect to index dissemination, 

the Exchange proposes to adopt 

Sections 703.16(D)(2)(b) and (E)(1)(b) of 

the Manual. Section 703.16(D)(2)(b) 

would require that the index value for 

an ETF listed pursuant to the proposed 

standards for fixed income ETFs be 

widely disseminated by one or more 

major market data vendors at least once 

a day. 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. 

This reflects the nature of the fixed 

income markets as well as the frequency 

of intra-day trading information with 

respect to Fixed Income Indexes. If an 

ETF is based on a Combination Index, 

pursuant to proposed Section 

703.16(E)(1)(b), the index would have to 

be widely disseminated by one or more 

major market data vendors at least every 

15 seconds during the time when the 

ETF shares trade on the Exchange to 

reflect updates for the prices of the 

equity securities included in the 

Combination Index. The fixed income 

portion of the Combination Index would 

have to be updated at least daily. 

Application of General Rules. Section 

703(16)(F) would be added to identify 

those requirements for ETFs that would 

apply to all such series of ICUs based on 

Fixed Income or Combination Indexes. 

This would include the dissemination 

of the Intraday Indicative Value, an 

estimate of the value of a share of each 

ETF, updated at least every 15 seconds. 

In addition, Section 703.16(F)(2) would 

provide that paragraph (C)(5) of Section 

703.16, which requires the Exchange to 

implement written surveillance 

procedures applicable to a series of 

ICUs, would apply to series of ICUs 

based on Fixed Income or Combination 

Indexes. 

The Exchange states that 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 rule changes previously 

approved by the Commission under 

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

Exchange proposes to include in the 

generic standards for the listing of ICUs 

based on Fixed Income and 

Combination Indexes, in Section 

703.16(E), indexes described in 

exchange rules approved by the 

Commission in connection with the 

listing of options, Investment Company 

Units, Index-Linked Exchangeable 

Notes, or Index-Linked Securities. The 

Exchange believes that the application 

of that standard to ETFs is appropriate 

because the underlying index would 

have been subject to Commission review 

in the context of the approval of listing 

of other derivatives.24

The Exchange notes that current 

Section 703.16(E), which includes 

continued listing criteria applicable to 

ICUs, would be re-designated as Section 

703.16(H), and this provision would 

apply to a series of ICUs based on Fixed 

Income or Combination Indexes. 

The Exchange further notes that 

current Section 703.16(A)(6) of the 

Manual provides that, in connection 

with approving an ETF issuer for listing 

on the Exchange, the Exchange will 

obtain a representation from the ETF 

issuer that the NAV per share will be 

calculated each business day and made 

available to all market participants at 

the same time. 

The trading halt or suspension 

requirements for existing ETFs 

contained in current Rule 1100(f) will 

similarly apply to fixed income and 

combination index ETFs. 

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 

unlisted trading privileges. 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 its 

proposal is consistent with Section 6(b) 

of the Act 25 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 26

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, 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. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange believes that the 

proposed rule change would impose no 

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 

The Exchange has neither solicited 

nor received comments on this 

proposal. 

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 (www.sec.gov/rules/ 

sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NYSE–2007–37 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

Station Place, 100 F Street, NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NYSE–2007–37. 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 (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 


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29026 Federal Register / Vol. 72, No. 99 / Wednesday, May 23, 2007 / Notices 

27 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). 

28 15 U.S.C. 78f(b)(5). 

29 15 U.S.C. 78s(b)(1). 

30 17 CFR 240.19b–4. 

31The Commission notes that failure of a 

particular ETF to satisfy the Exchange’s generic 

listing standards does not preclude the Exchange 

from submitting a separate proposal under Rule 

19b–4 to list and trade such ETF. 

32See Securities Exchange Act Release No. 55434 

(March 9, 2007), 72 FR 12233 (March 15, 2006) (SR–

Amex–2006–118) (approving generic listing 

standards for series of ETFs based on Fixed Income 

and Combination Indexes). 33 15 U.S.C. 78k–1(a)(1)(C)(iii). 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NYSE–2007–37 and should 

be submitted on or before June 7, 2007. 

IV. Discussion 

After careful review, the Commission 

finds that the proposed rule change, as 

amended, is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities exchange.27 In 

particular, the Commission finds that 

the proposal is consistent with Section 

6(b)(5) of the Act 28 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 would have 

to file a proposed rule change with the 

Commission pursuant to Section 

19(b)(1) of the Act 29 and Rule 19b–4 

thereunder 30 to list or trade any ETF 

based on a Fixed Income Index or on a 

Combination Index. The Exchange also 

would have to file a proposed rule 

change to list or trade an ETF based on 

a Fixed Income or Combination Index 

described in an exchange rule 

previously approved by the Commission 

as an underlying benchmark for a 

derivative security. Rule 19b–4(e), 

however, 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 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 Fixed Income 

Securities or (2) indexes or portfolios 

described in exchange rules 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.31

The Commission previously has 

approved generic listing standards for 

another exchange, Amex, that are 

substantially similar to those proposed 

here by NYSE.32 This proposal does not 

appear to raise any novel regulatory 

issues. Therefore, the Commission finds 

that NYSE’s proposal is consistent with 

the Act on the same basis that it 

approved Amex’s generic listing 

standards for ETFs based on Fixed 

Income or Combination Indexes or on 

indexes or portfolios described in 

exchange rules that have previously 

been approved by the Commission and 

underlie derivative securities. 

Proposed Sections 703.16(D) and 

703.16(E) of the Manual establish the 

standards for the composition of a Fixed 

Income Index or Combination Index 

underlying an ETF. The Commission 

believes that these standards are 

reasonably designed to ensure that a 

substantial portion of any underlying 

index or portfolio consists of securities 

about which information is publicly 

available, 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 a surrogate for trading in 

unregistered securities. 

The proposed generic listing 

standards also will permit NYSE to list 

and trade an ETF if the Commission 

previously has approved an exchange 

rule that contemplates listing and 

trading a derivative security based on 

the same underlying index. NYSE 

would be able to rely on that earlier 

approval order, provided that NYSE 

complies with the commitments 

undertaken by the other SRO set forth 

in the prior order, including any 

surveillance-sharing arrangements. 

The Commission believes that NYSE’s 

proposal is consistent with Section 

11A(a)(1)(C)(iii) of the Act,33 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 value of 

a Fixed Income Index underlying 

underlying an ETF listed pursuant to 

this proposal is required to be widely 

disseminated by one or more major 

market data vendors at least once a day. 

Likewise, the value of an underlying 

Combination Index is required to be 

widely disseminated by one or more 

major market data vendors at least once 

every 15 seconds during the time when 

the corresponding ETF trades on the 

Exchange, provided that, with respect to 

the fixed income components of the 

Combination Index, the impact on the 

index is required to be updated only 

once each day. 

Furthermore, the Commission 

believes that the proposed rules are 

reasonably designed to promote fair 

disclosure of information that may be 

necessary to price an ETF appropriately. 

If a broker-dealer is responsible for 

maintaining (or has a role in 

maintaining) the underlying index, such 

broker-dealer would be required to erect 

and maintain a ‘‘firewall,’’ in a form 

satisfactory to the Exchange, to prevent 

the flow of non-public information 

regarding the underlying index from the 

personnel involved in the development 

and maintenance of such index to others 

such as sales and trading personnel. The 

Commission also notes that current 

Section 703.16(A)(6) of the Manual 

provides that, in connection with 

approving an ETF issuer for listing on 

the Exchange, the Exchange will obtain 

a representation from the ETF issuer 

that the NAV per share will be 

calculated each business day and made 

available to all market participants at 

the same time. 

The Commission also believes that the 

Exchange’s trading halt rules are 

reasonably designed to prevent trading 

in an ETF when transparency is 

impaired. 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. 

Also, the Exchange may commence 

delisting proceedings in the event that 


pwalker on PROD1PC71 with NOTICES
Federal Register / Vol. 72, No. 99 / Wednesday, May 23, 2007 / Notices 29027 

34See proposed Section 703.16(F)(2). 

35See supra note 32. 

36 15 U.S.C. 78s(b)(2). 

37 Id. 

38 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(6). 

5See Securities Exchange Act Release No. 50643 

(November 5, 2004), 69 FR 65668 (November 15, 

2004) (SR–PCX–2004–98) (approving amendments 

to NYSE Arca Equities Rule 7.35 to include certain 

ETFs in the closing auction process). NYSE Arca 

Equities Rule 7.35(e)(3)(E) applies only to securities 

that are listed on the Exchange and not to securities 

that are traded pursuant to unlisted trading 

privileges (‘‘UTP’’). 

6See Securities Exchange Act Release No. 51245 

(February 23, 2005), 70 FR 10731 (March 4, 2005) 

(SR–PCX–2004–117) (approving generic listing 

standards for Equity Gold Shares and trading, on a 

UTP basis, of the streetTRACKS Gold Shares 

pursuant to NYSE Arca Equities Rule 5.2(j)(5)). 

7See Securities Exchange Act Release No. 44182 

(April 16, 2001), 66 FR 21798 (May 1, 2001) (SR–

PCX–2001–01) (approving generic listing standards 

for Trust Issued Receipts pursuant to NYSE Arca 

Equities Rule 8.200). 

8See Securities Exchange Act Release No. 51067 

(January 21, 2005), 70 FR 3952 (January 27, 2005) 

(SR–PCX–2004–132) (approving generic listing 

standards for Commodity-Based Trust Shares and 

trading, on a UTP basis, of the iShares COMEX 

Gold Trust pursuant to NYSE Arca Equities Rule 

8.201). 

the value of the underlying index is no 

longer calculated or available. 

The Exchange will implement written 

surveillance procedures for ETFs based 

on Fixed Income Indexes or 

Combination Indexes.34 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 this proposal. 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.35 The Commission does 

not believe that NYSE’s proposal raises 

any novel regulatory issues and, 

therefore, believes 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,36 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,37

that the proposed rule change (SR–

NYSE–2007–37), 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.38

J. Lynn Taylor, 

Assistant Secretary. 

[FR Doc. E7–9874 Filed 5–22–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55775; File No. SR–

NYSEArca–2007–40] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Relating to Closing 

Auctions for Securities Similar to 

Exchange-Traded Funds 

May 16, 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 11, 

2007, NYSE Arca, Inc. (‘‘NYSE Arca’’ or 

‘‘Exchange’’), through its wholly owned 

subsidiary NYSE Arca Equities, Inc. 

(‘‘NYSE Arca Equities’’), 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. 

The Exchange filed the proposed rule 

change pursuant to Section 19(b)(3)(A) 

of the Act 3 and Rule 19b–4(f)(6) 

thereunder,4 which renders the proposal 

effective upon filing with the 

Commission. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange, through NYSE Arca 

Equities, proposes to amend NYSE Arca 

Equities Rule 7.35(e)(3)(E) relating to 

closing auctions for exchange-traded 

funds (‘‘ETFs’’). The text of the 

proposed rule change is available on the 

Exchange’s Web site (http:// 

www.nysearca.com), at the Exchange’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 

The Exchange proposes to amend 

NYSE Arca Equities Rule 7.35(e)(3)(E) 

relating to closing auctions for ETFs. 

Currently, NYSE Arca Equities Rule 

7.35(e)(3)(E) provides special closing 

auction rules for certain listed ETFs as 

defined in NYSE Arca Equities Rules 

5.1(b)(13) (Unit Investment Trusts), 

5.2(j)(3) (Investment Company Units), 

and 8.100 (Portfolio Depositary 

Receipts).5 Since receiving Commission 

approval to include ETFs in its closing 

auction process in 2004, the Exchange 

has obtained approval from the 

Commission to list and trade the 

securities of additional derivative 

securities products that operate in a 

manner similar to ETFs. These 

derivative securities products are not 

currently included in NYSE Arca 

Equities Rule 7.35(e)(3)(E). The 

Exchange proposes to amend NYSE 

Arca Equities Rule 7.35(e)(3)(E) to 

include references to the rules 

governing these additional derivative 

securities products, rendering these 

types of products subject to the same 

closing auction rules as ETFs. 

Specifically, the Exchange proposes to 

amend NYSE Arca Equities Rule 

7.35(e)(3)(E) to include references to 

NYSE Arca Equities Rules 5.2(j)(5) 

(Equity Gold Shares),6 8.200 (Trust 

Issued Receipts),7 8.201 (Commodity 

Based Trust Shares),8 8.202 (Currency 


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