[Federal Register Volume 66, Number 98 (Monday, May 21, 2001)]
[Notices]
[Pages 28008-28009]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-12691]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44306; File No. SR-NYSE-2001-10]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the New York Stock Exchange, 
Inc. To Amend Its Allocation Policy Relating to Exchange-Traded Funds 
Traded on an Unlisted Trading Privileges Basis

May 15, 2001.
    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 14, 2001, the New York Stock Exchange, Inc. (``Exchange'' or 
``NYSE'') filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the NYSE. The proposed 
rule change has been filed by the NYSE as a ``non-controversial'' rule 
change under Rule 19b-4(f)(6) under the Act.\3\ The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The NYSE proposes to amend its Allocation Policy (``Policy'') \4\ 
for allocating Exchange-Traded Funds (``ETFs'') traded on an unlisted 
trading privileges (``UTP'') basis to specify that specialist units may 
appear before the special committee responsible for allocating ETFs.
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    \4\ The NYSE recently amended its Policy to provide special 
procedures and to establish a new allocation committee for ETFs. The 
Commission accelerated approval of these amendments on a pilot basis 
through May 7, 2002. See Securities Exchange Act Release No. 44272 
(May 7, 2001) (File No. SR-NYSE-2001-07).
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    Below is the text of the proposed rule change. Proposed new 
language is italicized and proposed deletions are in brackets.

* * * * *

Policy for Allocation of Exchange-Traded Funds Admitted to Trading on 
the Exchange on an Unlisted Trading Privileges Basis

    Exchange-traded funds (``ETFs'') (as defined in paragraph 703.16 
of the Listed Company Manual) admitted to trading on the Exchange on 
an unlisted trading privileges basis shall be allocated pursuant to 
this Policy rather than the Exchange's policy for allocating 
securities to be listed on the Exchange.
    ETFs shall be allocated by a special committee consisting of the 
Chairman of the Allocation Committee, the three most senior Floor 
broker members of the Allocation Committee, and four members of the 
Exchange's senior management as designated by the Chairman of the 
Exchange. This committee shall solicit allocation applications from 
interested specialist units, and shall review the same performance 
and disciplinary material with respect to specialist unit applicants 
as would be reviewed by the Allocation Committee in allocating 
listed stocks. The committee shall reach its decisions by majority 
vote with any tie votes being decided by the Chairman of the 
Exchange. Specialist unit applicants [shall not] may appear before 
the committee.

Special Criteria

    In their allocation applications, specialist units must 
demonstrate:
    (a) An understanding of the trading characteristics of ETFs;
    (b) Expertise in the trading of derivatively-priced instruments;
    (c) Ability and willingness to engage in hedging activity as 
appropriate;
    (d) Knowledge of other markets in which the ETF to be allocated 
trades;
    (e) Willingness to provide financial and other support to 
Exchange marketing and educational initiatives with respect to the 
ETF to be allocated.

Allocation Freeze Policy

    The Allocation Freeze Policy as stated in the Allocation Policy 
for listed stocks shall apply.

Prohibition on Functioning as Specialist in ETF and Specialist in any 
Component Security of the ETF

    No specialist member organization may apply to be allocated an 
ETF if it is registered as specialist in any security which is a 
component of the ETF. A specialist member organization which is 
registered as specialist in a component stock of an ETF may 
establish a separate member organization which may apply to be the 
specialist in an ETF. The approved persons of such ETF specialist 
member organization must obtain an exemption from specified 
specialist rules pursuant to Rule 98.
    If, subsequent to an ETF being allocated to a specialist member 
organization, a security in which the specialist member organization 
is registered as specialist becomes a component security of such ETF 
the specialist organization must (1) withdraw its registration as 
specialist in the security which is a component of the ETF; (ii) 
withdraw its registration as specialist in the ETF; or (iii) 
establish a separate specialist member organization, which will be 
registered as specialist in the ETF and whose approved persons have 
received an exemption from specified specialist rules pursuant to 
Rule 98.
* * * * *

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 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 IV below. The NYSE 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
    According to the Exchange, the intent of its current Policy is: (1) 
To ensure that the allocation process is based on fairness and 
consistency and that all specialist units have a fair opportunity for 
allocations based on established criteria and procedures; (2) to 
provide an incentive for ongoing enhancement of performance by 
specialist units; (3) to provide the best possible match between 
specialist unit and security; and (4) to contribute to the strength of 
the specialist system.
    The Exchange recently modified its conventional allocation process 
to provide that ETFs traded on a UTP basis be allocated by a special 
committee, and to establish special criteria to be considered by the 
special committee.\5\
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    \5\ See note 4 supra.
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    This current Policy for ETFs trading on a UTP basis states that 
specialist units shall not appear before the special committee. The 
Exchange proposes to amend its Policy to specify that specialist units 
may meet with the special committee. The Exchange has determined that 
due to the unique aspects of certain ETF products, it may be helpful 
for the special committee to meet with the interview specialist units 
before making an allocation decision.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
section 6(b) of the Act \6\ in general, and furthers the objectives of 
section 6(b)(5) of the Act \7\ in particular, because it is designed to 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in

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general, to protect investors and the public interest.
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    \6\ 15 U.S.C 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate burden on competition that is not necessary 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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, the proposed rule 
change has become effective pursuant to section 19(b)(3)(A) \8\ of the 
Act and Rule 19b-4(f)(6) \9\ thereunder.\10\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ As required under Rule 19b-4(f)(6)(iii), the Exchange 
provided the Commission with written notice of its intent to file 
the proposed rule change at least five business days prior to the 
filing date or such shorter period as designated by the Commission.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The NYSE seeks to have the proposed 
rule change become operative immediately to allow it to begin the 
process of selecting specialists to enable ETFs to trade on a UTP 
basis.
    The Commission, consistent with the protection of investors and the 
public interest, has determined to make the proposed rule change 
operative immediately as of May 15, 2001, because the proposed 
amendment to the NYSE's Policy effects a minor change with respect to 
the allocation of ETF's listed and traded on the Exchange on a UTP 
basis.\11\ The Commission notes that the NYSE's Policy regarding ETFs 
traded on a UTP basis was approved on a pilot basis.\12\ Thus, the 
instant proposed rule change is operative as of May 15, 2001 through 
May 7, 2002. 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.
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    \11\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \12\ See note 4 supra.
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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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
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 form 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 will also be 
available for inspection and copying at the principal office of the 
NYSE. All submissions should refer to File No. SR-NYSE-2001-10 and 
should be submitted by June 11, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 01-12691 Filed 5-18-01; 8:45 am]
BILLING CODE 8010-01-M