Document ID: SEC-2008-0090-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NYSE Arca,  Inc.
Posted Date: 2008-01-17T05:00Z

[Federal Register: January 17, 2008 (Volume 73, Number 12)]
[Notices]               
[Page 3300-3302]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17ja08-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57132; File No. SR-NYSEArca-2007-125]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of a Proposed Rule Change Relating to the Continued Listing 
Standards for Equity Index-Linked Securities

January 11, 2008.

I. Introduction

    On December 5, 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''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposal to amend NYSE Arca Equities Rule 
5.2(j)(6)(B)(I)(2)(a), which sets forth

[[Page 3301]]

the Exchange's continued listing criteria for Equity Index-Linked 
Securities.\3\ The proposed rule change was published for comment in 
the Federal Register on December 12, 2007.\4\ The Commission received 
no comments on the proposal. This order approves the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ NYSE Arca Equities Rule 5.2(j)(6) defines Equity Index-
Linked Securities as securities that provide for the payment at 
maturity of a cash amount based on the performance of an underlying 
index or indexes of equity securities, also referred to as the 
``Equity Reference Asset.'' See NYSE Arca Equities Rule 5.2(j)(6).
    \4\ See Securities Exchange Act Release No. 56918 (December 6, 
2007), 72 FR 70635 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to remove from NYSE Arca Equities Rule 
5.2(j)(6)(B)(I)(2)(a) the continued listing requirement for Equity 
Index-Linked Securities that prohibits the number of components 
comprising the underlying index from increasing or decreasing by 33\1/
3\% from the original number of index components at the time of initial 
listing of such securities (the ``33\1/3\% Requirement'').\5\ The 
Exchange states that its listing standards for exchange-traded funds 
under NYSE Arca Equities Rule 5.2(j)(3) and those of other national 
securities exchanges do not impose this same limitation regarding the 
change in the number of components comprising the underlying index. The 
Exchange believes that, in the case of Equity Index-Linked Securities, 
investors purchase such securities because they believe that the 
underlying index methodology is accurately described in the offering 
documentation, and that the index sponsor will maintain the index 
methodology appropriately, so that the index will continue to represent 
the sector, geographic region, or other investment characteristics the 
index is designed to track. As such, rather than buying Equity Index-
Linked Securities on the basis of the current contents of the index, 
the Exchange states that investors rely on the index sponsor to define 
and manage the index selection rules so that the index over time is 
sustainable in response to changing market conditions.
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    \5\ See NYSE Arca Equities Rule 5.2(j)(6)(B)(I)(2)(a)(ii).
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    In addition, because Equity Index-Linked Securities may have terms 
that endure for as long as 30 years, the Exchange states it is likely 
that the underlying index for such securities will ultimately change in 
ways that will render them non-compliant with NYSE Arca Equities Rule 
5.2(j)(6)(B)(I)(2)(a)(ii), and as a result, the Exchange believes that 
the 33\1/3\% Requirement penalizes Equity Index-Linked Securities with 
such long-term maturities. Specifically, Equity Index-Linked Securities 
based on total industry/country composite indexes are at risk of being 
delisted prior to the stated maturity date. In addition, new issues of 
Equity Index-Linked Securities may not be launched because of issuer 
concerns regarding the negative impact of the possible delisting of 
such securities due to index component changes that reflect expanding 
or retracting industry sectors or changes in the geographical business 
environment. The Exchange does not believe that it is protective of 
investors to require the delisting of those Equity Index-Linked 
Securities in such event.
    Under the proposal, the Exchange seeks to maintain the 10-component 
minimum requirement in NYSE Arca Equities Rule 
5.2(j)(6)(B)(I)(2)(a)(ii) as a continued listing standard by moving 
reference to this requirement to Rule 5.2(j)(6)(B)(I)(2)(a), which 
would make reference to Rule 5.2(j)(6)(B)(I)(1)(a), as proposed. NYSE 
Arca Equities Rule 5.2(j)(6)(B)(I)(1)(a) requires that each underlying 
index have at least 10 component securities of different issuers.

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

    After careful review and based on the Exchange's representations, 
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.\6\ In particular, the 
Commission finds that the proposed rule change is consistent with 
section 6(b)(5) of the Act \7\ in that it is designed to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and 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.
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    \6\ In approving this proposed 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).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that, pursuant to NYSE Arca Equities Rule 
5.2(j)(6)(A)(b), certain issues of Equity Index-Linked Securities may 
have terms that endure for as long as 30 years and, depending on the 
degree of focus and investment objectives of the Equity Reference 
Asset, the number of components comprising the underlying equity index 
may change during this time period and could put an issue of Equity 
Index-Linked Securities at risk of being non-compliant with the 33\1/
3\% Requirement. Therefore, Equity Index-Linked Securities could be 
subject to delisting prior to their stated maturity date. The 
Commission believes that eliminating the 33\1/3\% Requirement 
reasonably balances the removal of impediments to a free and open 
market with the protection of investors and the public interest, two 
principles set forth in section 6(b)(5) of the Act.\8\ The Commission 
notes that each issue of Equity Index-Linked Securities must continue 
to maintain all of the initial listing standards for Equity Index-
Linked Securities, including the continued requirement that each 
underlying index have a minimum of 10 component securities of different 
issuers under NYSE Arca Equities Rule 5.2(j)(6)(B)(I)(1)(a), and 
satisfy the continued listing requirements under NYSE Arca Equities 
Rule 5.2(j)(6)(B)(I)(2)(a), including the enhanced minimum 
concentration limits under NYSE Arca Equities Rule 
5.2(j)(6)(B)(I)(2)(a)(i). Given the variety of certain equity indexes 
that focus on specific industry sectors and geographic markets, for 
example, and the extended duration of maturities for certain Equity 
Index-Linked Securities, the Commission believes that the number of 
components in an index may increase or decrease by more than 33\1/3\% 
from the number of components in the index at the time of initial 
listing without adversely impacting the interests of investors. At the 
same time, the Commission believes that the proposal should benefit 
investors by creating additional alternatives to investing in such 
products and competition in the market for Equity Index-Linked 
Securities, while maintaining transparency of the underlying components 
comprising an index. As such, the Commission believes it is reasonable 
and consistent with the Act for the Exchange to modify the listing 
standards for Equity Index-Linked Securities in the manner described in 
the proposal.
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    \8\ Id.
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-NYSEArca-2007-125), be, and 
it hereby is, approved.
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    \9\ 15 U.S.C. 78s(b)(2).

[[Page 3302]]

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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-707 Filed 1-16-08; 8:45 am]

BILLING CODE 8011-01-P