Document ID: SEC-2008-0882-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations: NYSE Arca, Inc.
Posted Date: 2008-07-02T04:00Z

[Federal Register: July 2, 2008 (Volume 73, Number 128)]
[Notices]               
[Page 38003-38008]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02jy08-120]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58024; File No. SR-NYSEArca-2008-63)

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of a Proposed Rule Change Relating to the Listing and Trading of Shares 
of the MacroShares Medical Inflation Trusts

June 25, 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 June 13, 2008, 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, II, 
and III below, which Items have been substantially prepared by the 
Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Equities Rule 8.400 
(Paired Trust Shares), and to list and trade shares of the MacroShares 
Medical Inflation Up Trust Series 2008-1 (``Up Trust'') and the 
MacroShares Medical Inflation Down Trust Series 2008-1 (``Down Trust'') 
(collectively, the ``Trusts'') pursuant to that rule. The shares of the 
Up Trust are referred to as the Up MacroShares, the shares of the Down 
Trust are referred to as the Down MacroShares, and they are referred to 
collectively as the ``Shares.'' The text of the proposed rule change is 
available at the Exchange, the Commission's Public Reference Room, and 
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 IV 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 8.400 
(Paired Trust Shares), and to list and trade the Up MacroShares and the 
Down MacroShares under the rule, as proposed to be amended herein.\3\ 
The Up MacroShares and the Down MacroShares will be offered by the Up 
Trust and the Down Trust, respectively, established by MACRO Inflation 
Depositor, LLC, as depositor, under the laws of the State of New York. 
The Trusts are not registered with the Commission as investment 
companies.\4\
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    \3\ The Commission approved for listing and trading a similar 
product on the American Stock Exchange. See Securities Exchange Act 
Release No. 54839 (November 29, 2006), 71 FR 70804 (December 6, 
2006) (SR-Amex-2006-82) (approving listing and trading Claymore 
MACROshares Oil Up Tradeable Shares and Claymore MACROshares Oil 
Down Tradeable Shares). The Commission also approved this product 
for trading on the Exchange pursuant to unlisted trading privileges 
when it approved new NYSE Arca Equities Rule 8.400. See Securities 
Exchange Act Release No. 55033 (December 29, 2006), 72 FR 1253 
(January 10, 2007) (SR-NYSEArca-2006-75) (approving trading Claymore 
MACROshares Oil Up Tradeable Shares and Claymore MACROshares Oil 
Down Tradeable Shares).
    \4\ The Shares are being offered by the Trusts under the 
Securities Act of 1933, as amended, 15 U.S.C. 77a. On January 25, 
2008, the depositor filed with the Commission Amendment No. 1 to 
Registration Statement on Form S-1 for the Up MacroShares (File No. 
333-147948) (``Up Trust Registration Statement''). The depositor 
will file with the Commission a Registration Statement on Form S-1 
for the Down MacroShares prior to commencement of trading in the 
Shares on the Exchange.
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a. Amendment to NYSE Arca Equities Rule 8.400
    The Exchange proposes to amend NYSE Arca Equities Rule 8.400, which 
applies to Paired Trust Shares, to accommodate the listing and trading 
of Shares. In its current form, NYSE Arca Equities Rule 8.400 applies 
to Paired Trust Shares that consist of Holding Shares and Tradeable 
Shares.\5\ As described in more detail below, the structure of the 
series of Paired Trust Shares proposed to be listed and traded on the 
Exchange pursuant to this proposed rule change varies from the 
structure of Holding Shares and Tradable Shares in that there are no 
Holding Trusts and there is only one set of trusts (the ``Up Trust'' 
and the ``Down Trust'') instead of two.
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    \5\ Holding Shares are issued by a matched pair of trusts 
(``Holding Trusts'') in exchange for cash, and Tradeable Shares are 
issued by a different pair of trusts (``Tradeable Trusts'') in 
exchange for the deposit of Holding Shares. These rules accommodated 
the structure of the Claymore MACROshares Oil Up Tradeable Shares 
and Claymore MACROshares Oil Down Tradeable Shares previously 
approved by the Commission. See note 3, supra.
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    Under the proposed amendments to NYSE Arca Equities Rule 
8.400(b)(1), the term ``Paired Trust Shares'' would refer to: (1) Both 
Holding Shares and Tradeable Shares; or (2) solely ``Trading Shares,'' 
which is a new defined term in NYSE Arca Equities Rule 8.400(b)(1)(B). 
Trading Shares would be defined similarly to Holding Shares in current 
NYSE Arca Equities Rule 8.400(b)(2) (proposed to be renumbered as NYSE 
Arca Equities Rule 8.400(b)(1)(A)(i)), except that it is not required 
that a majority of Trading Shares be acquired

[[Page 38004]]

and deposited in a related Tradeable Trust, as it is with Holding 
Shares, insofar as Trading Shares do not involve the deposit of Holding 
Shares in a Tradeable Trust. The term Trading Share would be defined as 
a security: (1) That is issued by either of a matched pair of trusts 
(``Trading Trusts'') whose respective underlying values move in 
opposite directions as the value of a specified Reference Price 
(defined in NYSE Arca Equities Rule 8.400(c)) varies from its starting 
level; (2) that is issued in exchange for cash; (3) the issuance 
proceeds of which are invested and reinvested in highly rated short-
term financial instruments that mature prior to the next scheduled 
income distribution date for the security and that serve specified 
functions; (4) that represents a beneficial interest in the Trading 
Trust that issued it; (5) the value of which is determined by the 
underlying value of the related Trading Trust, which underlying value 
will either (a) increase as a result of an increase in the Reference 
Price and decrease as a result of a decrease in the Reference Price (in 
the case of an ``Up Trading Share'' issued by an ``Up Trading Trust'') 
or (b) increase as a result of a decrease in the Reference Price and 
decrease as the result of an increase in the Reference Price (in the 
case of a ``Down Trading Share'' issued by the paired ``Down Trading 
Trust''); (6) whose issuing Trading Trust enters into one or more 
settlement contracts and an income distribution agreement with the 
other paired Trading Trust; (7) that, when timely aggregated in a 
specified minimum number or amount of securities, along with a 
specified multiple of that number or amount of securities issued by the 
other paired Trading Trust, may be redeemed for a distribution of cash 
and/or securities on specified dates by authorized parties, and (8) 
that may be subject to early mandatory redemption of all Trading Shares 
prior to the final scheduled termination date under specified 
circumstances.
    As a result of a recent interpretation by the staff of the Internal 
Revenue Service relating to the inability to interpose a grantor trust 
in order to utilize a certain tax reporting form, the Exchange has been 
notified that the need for the current two-tier trust structure set 
forth in NYSE Arca Equities Rule 8.400 for Paired Trust Shares is no 
longer necessary. The Exchange represents that there are no substantive 
differences between the proposed structure (a single set of Trading 
Trusts that issue Trading Shares and hold financial instruments) and 
the current two-tier structure (a set of Tradeable Trusts that issue 
Tradeable Shares and hold Holding Shares issued by a set of Holding 
Trusts that invest in financial instruments).
    The Exchange proposes conforming changes in the remainder of NYSE 
Arca Equities Rule 8.400. Specifically, NYSE Arca Equities Rule 
8.400(c) would be amended to provide that, with respect to the value of 
the ``Reference Price'' as defined in that rule, the mechanism that 
incorporates the value of the Reference Price into the value 
determination for the Paired Trust Shares could consist of settlement 
contracts and an earnings distribution agreement entered into by and 
between the paired Trading Trusts that issue the Trading Shares, as 
well as by and between the paired Holding Trusts that issue the Holding 
Shares.
    NYSE Arca Equities Rule 8.400(d)(1)(i) would be amended to add 
Trading Trusts to the other entities (i.e., Holding Trusts and 
Tradeable Trusts) for which the Exchange will establish a minimum 
number of Paired Trust Shares required to be outstanding at the 
commencement of trading. NYSE Arca Equities Rule 8.400(d)(1)(ii) would 
be amended to state that the Exchange will obtain a representation that 
the underlying value per share of each Up Trading Share and Down 
Trading Share (in the case of a series with Trading Shares) will be 
calculated daily and made available to all market participants at the 
same time.
    NYSE Arca Equities Rule 8.400(d)(2) would be amended to state that 
the Exchange will remove from listing any series of Paired Trust Shares 
under specified circumstances. Specifically, Trading Trusts, Up Trading 
Shares and Down Trading Shares would be added to the existing rule for 
purposes of the distribution and combined market value criteria of such 
rule (NYSE Arca Equities Rule 8.400(d)(2)(i)).
    NYSE Arca Equities Rule 8.400(d)(2)(ii), relating to calculation of 
the intraday value of the Reference Price, would be amended to state 
that, for a series of Paired Trust Shares for which the value of the 
Reference Price is not updated intraday, such value shall be calculated 
and available once each trading day. In addition, NYSE Arca Equities 
Rule 8.400(d)(2)(iii), relating to the availability of intraday 
indicative values, would be amended to add reference to Trading Shares 
and to provide an exception for series of Paired Trust Shares that have 
been approved for listing and trading by the Commission under Section 
19(b)(2) of the Act \6\ without the requirement than an intraday 
indicative value be made available as set forth in subparagraph (iii).
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    \6\ 15 U.S.C. 78s(b).
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    NYSE Arca Equities Rule 8.400(d)(2)(iv) would be amended to clarify 
that the provision relating to the need to file a proposed rule change 
pursuant to Rule 19b-4 under the Act \7\ if a substitute index or other 
replacement benchmark is selected for the determination of the 
Reference Price applies to Trading Shares as well as Tradeable Shares.
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    \7\ 17 CFR 240.19b-4.
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    The trading halts provision in NYSE Arca Rule 8.400(d) would be 
amended to add reference to Trading Shares. The term ``Trading Trust'' 
also would be added to the termination provision in NYSE Arca Equities 
Rule 8.400(d)(2), the trust term provision in NYSE Arca Equities Rule 
8.400(d)(3), the trustee requirement provision in NYSE Arca Equities 
Rule 8.400(d)(4)(i), and the voting rights provision in NYSE Arca 
Equities Rule 8.400(d)(5).
    NYSE Arca Equities Rule 8.400(f) (Limitation of Corporation 
Liability) would be amended to substitute ``trusts'' for ``Holding 
Trusts'' in the provision relating to underlying values of the trusts, 
in order to encompass Tradeable Trusts.
b. Description of the Shares and the Trusts
    The Up Trust and the Down Trust intend to issue Up MacroShares and 
Down MacroShares, respectively, on a continuous basis at the direction 
of authorized participants, as described in more detail below. The Up 
MacroShares and the Down MacroShares represent undivided beneficial 
interests in the Up Trust and the Down Trust, respectively.
    The assets of each Trust will consist of an income distribution 
agreement and settlement contracts entered into with the other 
Trust.\8\ Under the income distribution agreement, as of any 
distribution date, each Trust will either: (1) Be required to pay a 
portion of its available income to the other Trust; or (2) be entitled 
to receive all or a portion of the other Trust's available income, 
based, in each case, on the Applicable Reference Value of Medical 
Inflation (the ``Applicable Reference Value,'' as defined below) for 
each day during the preceding calculation period. Under each settlement 
contract, in connection with the final scheduled termination date, an 
early termination date or any redemption date, each Trust will either: 
(1) Be required to make a final payment

[[Page 38005]]

out of its assets to the other Trust; or (2) be entitled to receive a 
final payment from the other Trust out of the assets of the other 
Trust, based, in each case, on the Applicable Reference Value for the 
period from the closing date through the date of redemption. Each Trust 
will also hold U.S. Treasuries and repurchase agreements on U.S. 
Treasuries to secure its obligations under the income distribution 
agreement and the settlement contracts.
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    \8\ The Exchange states that the income distribution agreement 
and applicable settlement contracts will be attached as Exhibits to 
the Registration Statement.
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    Each Trust will make quarterly distributions of income on the 
treasuries and a final distribution of all assets it holds on deposit 
on the final scheduled termination date, an early termination date or a 
redemption date. Each quarterly and final distribution will be based on 
the value for the medical care component of the Consumer Price Index 
for All Urban Consumers (``CPI-U''), as calculated and published 
monthly by the Bureau of Labor Statistics (``BLS'') at http://
www.bls.gov.\9\ The medical care component of the CPI-U reflects 
inflation in the cost of medical goods and services. The Applicable 
Reference Value is a daily linear interpolation based on the monthly 
values of the medical care component of the CPI-U for the preceding two 
months, and is the Reference Price for purposes of NYSE Arca Equities 
Rule 8.400, on the basis of which quarterly and final distributions on 
the Up MacroShares and Down MacroShares are calculated. The Applicable 
Reference Value is determined for each calendar day using a formula set 
forth in the Up Trust Registration Statement.\10\ For purposes of 
determining the Applicable Reference Value, following the monthly 
publication by the BLS, any corrections to the CPI-U values released 
for any calendar month will not be taken into consideration or used to 
recalculate the underlying value of the Shares.
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    \9\ The BLS publishes a summary of its methodology for 
calculating the CPI at http://www.bls.gov/cpi/. In addition, a 
manual entitled BLS Handbook of Methods, in which a chapter is 
dedicated to calculation methodology for the CPI, may be accessed on 
the BLS Web site at http://www.bls.gov/opub/hom/pdf/homch17.pdf. 
According to the Up Trust Registration Statement, the CPI is a 
complex mathematical construct that combines economic theory with 
sampling and other statistical techniques and uses data from various 
consumer surveys to produce a measure of average price changes for 
the consumption sector of the American economy. The CPI's 
measurement objectives and the standards according to which the BLS 
defines any bias in the CPI are derived from the broader framework 
of a hypothetical cost-of-living index. The goal of any cost-of-
living index is to determine the lowest hypothetical expenditure 
level necessary at this month's prices to achieve the same standard 
of living as that attained during a base reference time period.
    \10\ The final distribution made on the Up MacroShares on the 
final scheduled termination date, an early termination date or a 
redemption date will be based upon the underlying value of the Up 
Trust: (1) In the case of the final scheduled termination date, on 
that final scheduled termination date; (2) in the case of an early 
termination date, on that early termination date; and (3) in the 
case of a redemption date, on the related redemption order date. 
Underlying value will be calculated for each business day at the 
beginning of that business day and will be based upon the Applicable 
Reference Value on the preceding day, regardless of whether that 
preceding day is a business day or a non-business day. The 
underlying value on each determination date represents the aggregate 
amount of the assets in the paired trusts to which the Up Trust 
would be entitled if the settlement contracts were settled on that 
date. The underlying value of the Up Trust on each determination 
date also represents the aggregate final distribution to which 
holders of the Up MacroShares would be entitled if those shares were 
redeemed on that date. The underlying value is calculated for each 
business day as follows:
    The sum of the Up earned income accruals for each day that has 
elapsed during the current calculation period up to and including 
the current business day
    plus
    The UP investment amount on that date multiplied by the 
leveraged settlement factor (as defined in the Registration 
Statement), calculated for the day preceding the current business 
day.
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c. The CPI and the ``Medical Care'' Major Group
    According to the Up Trust Registration Statement, the BLS divides 
the CPI basket of consumer goods and services into a hierarchy of 
categories and a number of sub-categories. The first category is the 
category of the eight ``Major Groups,'' each of which is divided into 
sub-groups. ``Medical Care'' is one of the Major Groups. The Major 
Group of ``Medical Care'' represents, as of December 2006 (2003-2004 
Weights) 6.23% of the total consumer items which are covered by the 
CPI-U. The CPI-U ``medical care aggregate index'' covers two sub-
groups: (1) ``Medical Care Commodities,'' consisting of the expenditure 
categories of ``Prescription Drugs'' and ``Over-the-Counter Drugs and 
Medical Supplies,'' which are together responsible, as of December 2006 
(2003-2004 Weights), for approximately 23.021% of the CPI-U medical 
care aggregate index; and (2) ``Medical Care Services,'' consisting of 
three expenditure categories: ``Professional Services,'' ``Hospital 
Services,'' and ``Health Insurance,'' which collectively, as of 
December 2006 (2003-2004 Weights), represent approximately 76.962% of 
the CPI-U medical care aggregate index.
    The movement of the CPI medical care index is based on the average 
change in the prices of the sample set of entry level items selected to 
compose such index (e.g., a prescription for a specific medicine or a 
visit of a specified duration to a doctor or a hospital). The 
``outlets'' providing medical care, such as pharmacies, doctors' 
offices and hospitals, and the medical items which will be sampled in 
each such outlet are chosen by means of the commodities and services 
sampling procedure described in the Up Trust Registration Statement. 
The CPI data collectors select the sample items in each entry-level 
category by surveying respondents who purchased medical commodities 
and/or services in the chosen outlets. The CPI defines the transaction 
price for medical care items as all payments received or expected to be 
received from eligible payers, including both patients and insurers.
    With respect to the Up Trust, if the ratio of the Applicable 
Reference Value on any day to the Applicable Reference Value on the 
closing date (the date on which the Trusts entered into an income 
distribution agreement) exceeds the hurdle rate (``Hurdle Rate''),\11\ 
compounded on an annualized basis for the period from the closing date 
to the day of measurement,\12\ the underlying value of the Up Trust on 
the next business day will include all of its assets plus a portion of 
the assets of the paired Down Trust. This portion of assets due from 
the Down Trust will be multiplied by the leverage factor (``Leverage 
Factor'').\13\ Conversely, if

[[Page 38006]]

this ratio is less than the compounded hurdle rate, the Up Trust's 
underlying value will decrease, because a portion of its assets will be 
included in the underlying value of its paired Down Trust. This portion 
of assets due to the Down Trust will be doubled by the Leverage Factor.
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    \11\ The hurdle rate has been designated as 4.50%. This rate is 
fixed during the term of the Trusts. The Up Trust Registration 
Statement provides a description for calculating a hypothetical 
``per share underlying value'' for any date, which is the amount an 
investor would be entitled to receive as a final distribution on 
that date if the paired trusts were to settle the settlement 
contracts and the Up Trust were to make a final distribution on Up 
MacroShares. Because such a final distribution is hypothetical, the 
Up Trust Registration Statement refers to it solely for the purpose 
of explaining the meaning of underlying value and the terms of the 
income distribution agreement and the settlement contracts. The 
formula used to calculate underlying value is designed to compensate 
holders of the Up MacroShares for a rate of increase in the value of 
the medical care component of the Consumer Price Index that is above 
the designated ``hurdle rate,'' compounded for the period from the 
closing date to the relevant date of measurement. However, according 
to the Up Trust Registration Statement, the amount of this 
compensation is not designed to equal, in absolute terms or in any 
specified proportion, the increase in the price of medical goods and 
services and an investment in the shares will not offset such price 
increases but will provide only some measure of protection against 
them. The amount of that protection depends upon certain structural 
features of the transaction as well as the methodology for 
calculating the medical component of the CPI-U, as described in the 
Up Trust Registration Statement.
    \12\ Telephone Conversation between Michael Cavalier, Associate 
General Counsel, NYSE Euronext and Ronesha A. Butler, Special 
Counsel, Division of Trading and Markets, Commission dated June 25, 
2008. Compounded Hurdle Rate is defined in the Registration 
Statement. See supra note 4.
    \13\ The leverage factor is 2 and will be fixed for the term of 
the Trusts. According to the Up Trust Registration Statement, the 
impact of changes in the Applicable Reference Value is multiplied by 
the leverage factor. The medical inflation ratio of the Applicable 
Reference Value on a certain day to the Applicable Reference Value 
on the closing day, divided by the compounded hurdle rate, will 
yield a settlement factor by which the assets held on deposit by the 
Up Trust must be multiplied in order to determine the Trust's 
underlying value. Before being so applied, this settlement factor is 
first adjusted by a leverage factor, (i.e., 2). The effect of this 
is to double any increase in the underlying value of the Up Trust as 
well as to double any decline in that underlying value, making the 
per-share underlying value and the market price of an investor's Up 
MacroShares potentially more volatile than the value of medical 
inflation which those shares reference.
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    With respect to the Down Trust, if the ratio of the Applicable 
Reference Value on any day to the Applicable Reference Value on the 
closing date (the date on which the Trusts entered into an income 
distribution agreement) exceeds the Hurdle Rate, compounded for the 
period from the closing date to the day of measurement, the underlying 
value of the Down Trust on the next business day will decrease, because 
a portion of its assets will be included in the underlying value of its 
paired Up Trust. This portion of assets due to the Up Trust will be 
multiplied by the Leverage Factor. Conversely, if this ratio is less 
than the compounded Hurdle Rate, the Down Trust's underlying value will 
increase, because a portion of the assets of the Up Trust will be 
included in the underlying value of the Down Trust. This portion of 
assets due from the Up Trust will be doubled by the Leverage Factor.
    The Up MacroShares may be issued only in MacroShares Units 
consisting of a minimum of 50,000 Up MacroShares issued by the Up Trust 
and 50,000 Down MacroShares issued by the Down Trust. The Up Trust and 
Down Trust will issue their shares in the minimum amounts that 
constitute a MacroShares Unit on an ongoing basis only to persons who 
qualify as authorized participants at the per-share underlying value of 
those shares on the business day on which a creation order for the 
shares is delivered to and accepted by MacroMarkets LLC, the 
administrative agent.\14\ The Shares may then be sold by authorized 
participants to the public at the market price prevailing at the time 
of any such sale.
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    \14\ Authorized participants must also pay a transaction fee of 
$2,000 for any paired redemption or issuance and, for any paired 
issuance directed prior to July 1, 2008, a fee equal to 3.00% of the 
aggregate par amount of paired shares being created.
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    The Up MacroShares must be redeemed together with Down MacroShares 
by any holder who is an authorized participant on any business day in 
MacroShares Units consisting of a minimum of 50,000 Up MacroShares and 
50,000 Down MacroShares, at the respective per share underlying values 
of those shares, as measured on the applicable redemption date. Unless 
earlier redeemed on a redemption date or an early termination date, a 
final distribution will be made on the Up MacroShares on the 
distribution date occurring in 2018.
    The Up Trust Registration Statement includes a number of 
hypothetical scenarios of circumstances that will impact the underlying 
value of an Up MacroShare and a Down MacroShare. More information 
regarding the Shares, the Up Trust and the Applicable Reference Value, 
Income Distribution, Redemption Final Distribution, Risks, Fees and 
Expenses, Termination Triggers, and Creation and Redemption Procedures 
can be found in the Up Trust Registration Statement.\15\
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    \15\ See supra note 4.
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d. Availability of Information
    At the beginning of each business day, not later than one hour 
prior to the commencement of trading in the Core Trading Session on the 
Exchange, State Street Bank and Trust Company, the trustee for the Up 
Trust and the Down Trust, will calculate the underlying value of the Up 
Trust and the Down Trust and the per share underlying value of one Up 
MacroShare and one Down MacroShare. The trustee will then provide such 
values to the administrative agent, who will post them on its Web site 
located at http://www.macromarkets.com. The trustee will base its 
calculation of underlying value for any business day on the 
administrative agent's calculation of the Applicable Reference Value 
for the preceding day (regardless of whether that preceding day is a 
business day or non-business day),\16\ which it will provide to the 
trustee. The underlying value will be disseminated to all market 
participants at the same time.
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    \16\ The daily value of the Applicable Reference Value on the 
preceding day will be based upon the value of the medical component 
of the CPI-U that was calculated and published by the BLS for the 
second and third preceding calendar months.
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    An intraday indicative value will not be disseminated for the 
Trusts. The Reference Price (in the case of the Up Macroshares and Down 
Macroshares, the Applicable Reference Value) is a daily linear 
interpolation based on the monthly values of the medical care component 
of the CPI-U for the preceding two months. The Exchange believes that 
the Reference Price applicable to the Trusts, considered together with 
the current market price of Shares, will provide investors with 
sufficient information to approximate the amount to be received upon 
redemption of Shares.
    Information regarding the market price and volume of the Shares 
will be continually available on a real-time basis throughout the day 
via electronic services. The previous day's closing price and trading 
volume information for the Shares will be published daily in the 
financial section of major newspapers and will be available from major 
market data vendors. Quotation and last sale information for the Shares 
will be available via the Consolidated Tape Association high-speed 
line.
e. Initial and Continued Listing Criteria
    NYSE Arca Equities Rule 8.400(d) sets forth initial and continued 
listing criteria applicable to Paired Trust Shares. A minimum of 
100,000 Up MacroShares and 100,000 Down MacroShares will be required to 
be outstanding at the commencement of trading. In addition, the 
Exchange will obtain a representation on behalf of the Up Trust and the 
Down Trust that the underlying value per share of each Up Share and 
Down Share, respectively, will be calculated daily and will be made 
available to all market participants at the same time. The Exchange 
will remove from listing the Up MacroShares or the Down MacroShares 
under the circumstances outlined in the proposed amendments to NYSE 
Arca Equities Rule 8.400(d) for Trading Shares, which include:
     If, after the initial twelve-month period following the 
commencement of trading of the Shares, (A) the Up Trust or the Down 
Trust has more than 60 days remaining until termination and there are 
fewer than 50 record and/or beneficial holders of Up MacroShares or 
Down MacroShares, respectively, for 30 or more consecutive trading 
days; (B) if the Up Trust or the Down Trust has fewer than 50,000 Up 
MacroShares or Down MacroShares, respectively, issued and outstanding; 
or (C) if the combined market value of all Shares issued and 
outstanding for the Up Trust and the Down Trust combined is less than 
$1,000,000;
     If a replacement benchmark is selected for the 
determination of the Applicable Reference Value, unless the Exchange 
files with the Commission a related proposed rule change pursuant

[[Page 38007]]

to Rule 19b-4 under the Act \17\ seeking approval to continue trading 
the Up MacroShares or Down MacroShares and such rule change is approved 
by the Commission; or
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    \17\ 17 CFR 240.19b-4.
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     If such other event shall occur or condition exists which 
in the opinion of the Exchange makes further dealings on the Exchange 
inadvisable.

    NYSE Arca Equities Rule 8.400(d)(2) also provides that the Exchange 
will halt trading in the Up MacroShares or the Down MacroShares, as the 
case may be, if the circuit breaker parameters of NYSE Arca Equities 
Rule 7.12 have been reached. In exercising its discretion to halt or 
suspend trading in the Up MacroShares or the Down MacroShares, the 
Exchange may consider other factors that may be relevant.
f. Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares. Trading may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. These may include: (1) the extent to 
which trading is not occurring in the underlying securities; or (2) 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. NYSE Arca 
Equities Rule 8.400(d)(2) described above sets forth circumstances 
under which Shares may be halted.
    If the Exchange becomes aware that the underlying value per Share 
of each Up Share and Down Share is not disseminated to all market 
participants at the same time, it will halt trading in the Up 
MacroShares or the Down MacroShares, as the case may be, until such 
time as the underlying value per share is available to all market 
participants.
g. Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. Eastern Time in 
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late 
Trading Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions.
h. Surveillance
    The Exchange intends to utilize its existing surveillance 
procedures applicable to derivative securities products, including 
Paired Trust Shares, to monitor trading in the Shares. The Exchange 
represents that these procedures are adequate to properly monitor 
Exchange trading of the Shares in all trading sessions and to deter and 
detect violations of Exchange rules and applicable federal securities 
laws.
    The Exchange's current trading surveillance focuses on detecting 
securities trading outside their normal patterns. When such situations 
are detected, surveillance analysis follows and investigations are 
opened, where appropriate, to review the behavior of all relevant 
parties for all relevant trading violations.
    The Exchange may obtain information via the Intermarket 
Surveillance Group (``ISG'') from other exchanges who are members of 
the ISG.\18\ In addition, the Exchange also has a general policy 
prohibiting the distribution of material, non-public information by its 
employees.
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    \18\ For a list of the current members of ISG, see http://
www.isgportal.org.
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i. Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
ETP Holders in an Information Bulletin (``Bulletin'') of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Bulletin will discuss the following: (1) What the 
Shares are; (2) the procedures for purchases and redemptions of Shares 
in MacroShares Units (and that Shares are not individually redeemable); 
(3) NYSE Arca Equities Rule 9.2(a),\19\ which imposes a duty of due 
diligence on its ETP Holders to learn the essential facts relating to 
every customer prior to trading the Shares; (4) the requirement that 
ETP Holders deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (5) trading information.
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    \19\ NYSE Arca Equities Rule 9.2(a) provides that an ETP Holder, 
before recommending a transaction, must have reasonable grounds to 
believe that the recommendation is suitable for the customer based 
on any facts disclosed by the customer as to his other security 
holdings and as to his financial situation and needs. Further, the 
rule provides, with a limited exception, that prior to the execution 
of a transaction recommended to a noninstitutional customer, the ETP 
Holder shall make reasonable efforts to obrain information 
concerning the customer's financial status, tax status, investment 
objectives, and any other information that the ETP Holder believes 
would be useful to make a recommendation. See Securities Exchange 
Act release No. 54026 (June 21, 2006), 71 FR 36850 (June 28, 2006) 
(SR-PCX-2005-1150).
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    In addition, the Bulletin will reference that the Shares are 
subject to various fees and expenses described in the Registration 
Statement. The Bulletin will discuss any exemptive, no-action, and 
interpretive relief granted by the Commission from any rules under the 
Act.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \20\ that a national securities 
exchange have rules that are 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. The Exchange believes that the proposed rule 
amendments will facilitate the listing and trading of additional types 
of exchange-traded products that will enhance competition among market 
participants, to the benefit of investors and the marketplace. In 
addition, the listing and trading criteria set forth in the proposed 
rules are intended to protect investors and the public interest.
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    \20\ 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 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 on the proposed rule change were neither solicited 
nor received.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:

[[Page 38008]]

    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-NYSEArca-2008-63 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-NYSEArca-2008-63. 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 such 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-NYSEArca-2008-63 and should 
be submitted on or before July 23, 2008.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-14929 Filed 7-1-08; 8:45 am]

BILLING CODE 8010-01-P