Document ID: SEC-2008-1626-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations: NYSE Alternext US LLC
Posted Date: 2008-12-01T05:00Z

[Federal Register: December 1, 2008 (Volume 73, Number 231)]
[Notices]               
[Page 72879-72882]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01de08-133]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59006; File No. SR-NYSEALTR-2008-08]

 
Self-Regulatory Organizations; NYSE Alternext US LLC; Notice of 
Filing and Order Granting Accelerated Approval of Proposed Rule Change 
Relating to the Listing and Trading of Managed Fund Share Options

November 24, 2008.
    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 November 19, 2008, NYSE Alternext US LLC (``NYSE Alternext'' 
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 by the Exchange. The 
Commission is publishing this notice and order to solicit comments on 
the proposed rule change from interested persons and to approve the 
proposed rule change on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

---------------------------------------------------------------------------

[[Page 72880]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to revise Commentary .06 to Rule 915 to 
enable the listing and trading of options on Managed Fund Shares. The 
text of the proposed rule change is available on the Exchange's Web 
site at http://www.nyse.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 self-regulatory organization 
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 self-regulatory 
organization 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 purpose of the proposed rule change is to revise Commentary .06 
to NYSE Alternext Rule 915 to enable the listing and trading of options 
on managed fund shares (``Managed Fund Shares'') that are listed and 
traded on a national securities exchange and are considered to be an 
``NMS Stock'' (as defined in Rule 600 of Regulation NMS under the 
Securities and Exchange Act of 1934 (the ``Act'')).
    Managed Fund Shares are represent an interest in a registered 
investment company (``Investment Company'') organized as an open-end 
management investment company or similar entity.\3\ Unlike traditional 
exchange traded funds, Managed Fund Shares are actively managed. 
Managed Fund Shares, although, based upon a publicly disclosed 
portfolio of securities, each trade as a single exchange-listed equity 
security.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 57514 (March 17, 
2008), 73 FR 15230 (March 21, 2008)(Amex File No. SR-Amex-2008-
02)(order approving the listing and trading of Managed Fund Shares, 
generally, and the listing and trading specifically of shares of the 
Bear Stearns Current Yield Fund).
---------------------------------------------------------------------------

    Accordingly, rules pertaining to the listing and trading of 
standard equity options will apply to Managed Fund Shares.
Listing Criteria
    The Exchange will consider listing and trading options on Managed 
Fund Shares provided the Managed Fund Shares that meet (1) the criteria 
for underlying securities set forth in NYSE Alternext Rule 915(a) \4\ 
and (b) and Commentary .01 to Rule 915 \5\ or (2) the Managed Fund 
Shares are available for creation and redemption each business day as 
set forth in Commentary .06(a)(ii) to Rule 915.
---------------------------------------------------------------------------

    \4\ See NYSE Alternext Rule 915(a) which states that the 
underlying securities shall be duly registered and be an ``NMS 
Stock'' as defined in Rule 600 of Regulation NMS under the Act.
    \5\ See Commentary .01(1) through (3) to NYSE Alternext Rule 915 
which sets forth minimum requirements for the underlying security 
which include, but are not limited to, 7,000,000 underlying shares, 
2,000 shareholders, and trading volume of 2,400,000 shares over the 
preceding twelve months.
---------------------------------------------------------------------------

    The Exchange proposes that Managed Fund Shares deemed appropriate 
for options trading represent an interest in an open-end management 
investment company or similar entity, as described below:
     Managed Fund Shares are securities that represents an 
interest in an Investment Company organized as an open-end management 
investment company or similar entity, that invests in a portfolio of 
securities selected by the Investment Company's investment adviser 
consistent with the Investment Company's investment objectives and 
policies, which is issued in a specified aggregate minimum number in 
return for a deposit of a specified portfolio of securities and/or a 
cash amount with a value equal to the next determined net asset value 
(``NAV''), and when aggregated in the same specified minimum number, 
may be redeemed at a holder's request, which holder will be paid a 
specified portfolio of securities and/or cash with a value equal to the 
next determined NAV.
    For the purposes of Commentary .06(iv) to NYSE Alternext Rule 915, 
Managed Fund Shares are a class of exchange-traded fund shares that are 
actively managed as defined in NYSE Alternext Equities Rule 
1000B(b)(1).\6\
---------------------------------------------------------------------------

    \6\ See supra note 3.
---------------------------------------------------------------------------

Continued Listing Requirements
    Options on Managed Fund Shares will be subject to all Exchange 
rules governing the trading of equity options and furthermore, the 
rules pertaining to position and exercise limits \7\ or margin \8\ 
shall apply. The current continuing or maintenance listing standards 
for options traded on NYSE Alternext will continue to apply.
---------------------------------------------------------------------------

    \7\ Pursuant to NYSE Alternext Rule 904(a)(i), Managed Fund 
Shares are subject to the same position limits applicable to options 
on stocks and Exchange-Traded Fund Shares. NYSE Alternext Rule 905 
stipulates that exercise limits for options on stocks and other 
securities, including Managed Fund Shares, shall be the same as the 
position limits applicable under NYSE Alternext Rule 904.
    \8\ See NYSE Alternext Equities Rule 462 regarding margin 
requirements.
---------------------------------------------------------------------------

    The Exchange will utilize its existing surveillance procedures 
applicable to options on exchange traded funds (which will include 
Managed Fund Shares) to monitor trading. In addition, the Exchange will 
implement any new surveillance procedures it deems necessary to 
effectively monitor the trading of options on Managed Fund Shares, 
including adequate comprehensive surveillance sharing agreements 
(``CSSA'') with markets trading in non-U.S. components,\9\ as 
applicable. Also, the Exchange may obtain trading information via the 
Intermarket Surveillance Group (``ISG'') \10\ from other exchanges who 
are members or affiliates of the ISG. NYSE Alternext represents that 
these procedures will be adequate to properly monitor Exchange trading 
of options on these the securities and to deter and detect violations 
of Exchange rules.
---------------------------------------------------------------------------

    \9\ See Commentary .06(b) to Rule 915, the Exchange's rule 
governing the applicable CSSA requirements for options on exchange-
traded funds. We note that any non-U.S. component securities 
(including fixed-income) in an index or portfolio of securities on 
which the Fund Shares are based that are not subject to 
comprehensive surveillance agreements may in the aggregate represent 
an amount equal to 50% of the weight of the index or portfolio.
    \10\ A complete list of the current members of the ISG, is 
available at http://www.isgportal.org.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \11\ of the Act, in general, and furthers the 
objectives of Section 6(b)(5),\12\ 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 mechanisms of 
a free and open market and a national market system, and, in general, 
to protect investors and the public interest. The Exchange believes 
that the proposed rules applicable to trading pursuant to

[[Page 72881]]

generic listing and trading criteria, together with the Exchange's 
surveillance procedures applicable to trading in the securities covered 
by the proposed rules, serve to foster investor protection.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change will impose no burden on competition that 
is not necessary or appropriate in furtherance of the purposes of the 
1934 Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

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 (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEALTR-2008-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NYSEALTR-2008-08. 
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, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. 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-NYSEALTR-2008-08 and should 
be submitted on or before December 22, 2008.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange \13\ and, in particular, the requirements of Section 6 of the 
Act.\14\ Specifically, the Commission finds that the proposed rule 
change is consistent with Section 6(b)(5) of the Act,\15\ which 
requires, among other things, that the rules of a national securities 
exchange be designed 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.
---------------------------------------------------------------------------

    \13\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Listing and Trading of Options on Managed Fund Shares

    As set out above, the Exchange's proposed rules include 
requirements regarding initial and continued listing standards, the 
creation/redemption process for Managed Fund Shares, and trading halts. 
Managed Fund Shares must be traded through a national securities 
exchange or through the facilities of a national securities 
association, and must be ``NMS stock'' as defined under Rule 600 of 
Regulation NMS.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 242.600(b)(47).
---------------------------------------------------------------------------

    The Commission notes that, pursuant to Commentary .06(a) to NYSE 
Alternext Rule 915 and Commentary .07 to NYSE Alternext Rule 916, 
Managed Fund Shares will be subject to the initial and continuing 
eligibility standards for underlying securities provided in Alternext 
Rule 915 and 916, as applicable. In particular, to be options eligible, 
a Managed Fund Share must either meet the criteria and guidelines for 
underlying securities set forth in Commentary .01 to NYSE Alternext 
Rule 915, or alternately, the Managed Fund Share must be available for 
creation or redemption each business day in cash or in kind from the 
investment company, issuing trust, commodity pool or other entity at a 
price related to the NAV. In addition, the investment company, issuing 
trust, commodity pool or other entity shall provide that Managed Fund 
Shares may be created even though some or all of the securities and/or 
cash needed to be deposited have not been received by the unit 
investment trust or the management investment company, provided the 
authorized creation participant has undertaken to deliver the Managed 
Fund Shares and/or cash as soon as possible and such undertaking has 
been secured by the delivery and maintenance of collateral consisting 
of cash or cash equivalents satisfactory to the fund which underlies 
the option as described in the prospectus of the Managed Fund Share.
    To continue to be eligible to underlie options, the Managed Fund 
Share must remain an NMS stock listed on a national securities 
exchange. The Exchange will also consider the suspension of opening 
transactions in any series of options of the class covering Managed 
Fund Shares where the Managed Fund Share does not satisfy the 
requirements set out in Commentary .07 to NYSE Alternext Rule 916. 
These include: (1) In the case of options on Managed Fund Shares 
approved pursuant to paragraph (b) under Commentary .06 to NYSE 
Alternext Rule 915, compliance with paragraphs (1) through (7) of 
Commentary .01 to NYSE Alternext Rule 916; (2) following the initial 
twelve-month period, beginning upon the commencement of trading of the 
Managed Fund Shares on a national securities exchange and being defined 
as an ``NMS stock'', there are fewer than 50 record and/or beneficial 
holders of such Managed Fund Shares for 30 or more consecutive trading 
days; (3) the value of the index or portfolio of securities, non-U.S. 
currency, or portfolio of commodities including commodity futures 
contracts, options on commodity futures contracts, swaps, forward 
contracts, options on physical commodities and/or Financial Instruments 
and Money Market Instruments on which the Managed Fund Shares are based 
is no longer calculated or available. In addition, the Exchange retains 
discretion to suspend opening transactions in options on

[[Page 72882]]

Managed Fund Shares where conditions make further dealings in such 
options inadvisable.
    Furthermore, the Exchange represented that options on Managed Fund 
Shares will be subject to all Exchange rules governing the trading of 
equity options and that the rules pertaining to position and exercise 
limits \17\ or margin \18\ shall apply as well.
---------------------------------------------------------------------------

    \17\ See NYSE Alternext Rules 904(a)(i) and 905.
    \18\ See NYSE Alternext Rule 462.
---------------------------------------------------------------------------

Surveillance
    The Commission notes that the Exchange has represented that it will 
utilize its existing surveillance procedures applicable to options on 
exchange traded funds, which would include Managed Fund Shares, to 
monitor trading. In addition, the Exchange would implement any new 
surveillance procedures it deems necessary to effectively monitor the 
trading of options on Managed Fund Shares, including adequate 
comprehensive surveillance sharing agreements (``CSSA'') with markets 
trading in non-U.S. components,\19\ as applicable. Also, the Exchange 
may obtain trading information via the Intermarket Surveillance Group 
(``ISG'') \20\ from other exchanges who are members or affiliates of 
the ISG. The Exchange represented that it believes that these 
procedures will be adequate to properly monitor Exchange trading of 
options on these the securities and to deter and detect violations of 
Exchange rules. This order is based on these representations.
---------------------------------------------------------------------------

    \19\ See Commentary .06(b) to NYSE Alternext Rule 915, supra, 
note 9.
    \20\ A complete list of the current members of the ISG, is 
available at http://www.isgportal.org.
---------------------------------------------------------------------------

Accelerated Approval
    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\21\ for approving the proposed rule change prior to the 30th 
day after the date of publication of notice in the Federal Register. 
The Commission notes this proposed rule change is substantively 
identical to that of NYSE Arca, Inc. being concurrently approved today, 
which was published for a 21-day comment period and generated no 
comments.\22\ The Commission does not believe that this proposal raise 
any new regulatory issues. Therefore, the Commission believes that 
accelerating approval of this proposal should benefit investors by 
permitting, without undue delay, options on Managed Fund Shares to 
trade on NYSE Alternext.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(2).
    \22\ See Exchange Act Release No. 58799 (October 16, 2008), 73 
FR 63534 (October 24, 2008) (SR-NYSEArca-2008-108).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-NYSEALTR-2008-08) be, and it 
hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-28425 Filed 11-28-08; 8:45 am]

BILLING CODE 8011-01-P