Document ID: SEC-2008-0181-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2008-02-04T05:00Z

[Federal Register: February 4, 2008 (Volume 73, Number 23)]
[Notices]               
[Page 6544-6546]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04fe08-77]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57224; File No. SR-Phlx-2008-03]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the Listing Standards for Index-Linked Securities

January 29, 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 January 24, 2008, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') 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. Phlx filed the proposal 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.
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    \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).
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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 Phlx Rule 803(n)(1) to permit the 
listing of Index-Linked Securities \5\ that do not meet the minimum 
public holders and/or public distribution requirements when such Index-
Linked Securities is redeemable at the option of the holders thereof on 
at least a weekly basis. The text of the proposed rule change is 
available at the Exchange, the Commission's Public Reference Room, and 
http://www.phlx.com.

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    \5\ Index-Linked Securities are securities that provide for the 
payment at maturity of a cash amount based on the performance of an 
underlying index or indexes. Such securities may or may not provide 
for the repayment of the original principal investment amount. See 
Phlx Rule 803(n).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Phlx 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

[[Page 6545]]

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 Phlx Rule 803(n), the Exchange's 
listing standards for Index-Linked Securities, to encourage trading of 
Index-Linked Securities on the Exchange. The Commission has recently 
approved a similar proposal by NYSE Arca, Inc. (``NYSE Arca'').\6\
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    \6\ Securities Exchange Act Release No. 56593 (October 1, 2007), 
72 FR 57362 (October 9, 2007) (SR-NYSEArca-2007-96) (providing, 
among other things, that, if an issue of Index-Linked Securities is 
redeemable at the option of the holders thereof on at least a weekly 
basis, both the minimum one million publicly held trading units and 
400 beneficial holders initial distribution requirements would not 
apply).
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    Phlx Rule 803(n)(1) generally requires that each issue of Index-
Linked Securities have at least one million publicly traded units and 
that there be at least 400 public holders, provided, however, that the 
minimum public distribution and public shareholders requirements do not 
apply to an issue traded in thousand dollar denominations. In addition, 
Phlx Rule 803(n)(1) provides that the minimum public shareholders 
requirement does not apply if the Index-Linked Securities are 
redeemable at the option of the holders thereof on at least a weekly 
basis. The Exchange proposes to add another exception to the general 
requirements of Phlx Rule 803(n)(1) such that, if an issue of Index-
Linked Securities are redeemable at the option of the holders thereof 
on at least a weekly basis, then both the minimum public holders and 
public distribution requirements would not apply.
    The Exchange believes that, where there is such a weekly redemption 
right, the same justification exists for an exemption from the 
requirement to have one million units issued at the time of listing as 
applies to the 400 public holder requirement. The Exchange believes 
that a weekly redemption right will ensure a strong correlation between 
the market price of the Index-Linked Securities and the performance of 
the underlying index, as holders will be unlikely to sell their 
securities for less than their redemption value if they have a weekly 
right to be redeemed for their full value. In addition, in the case of 
those Index-Linked Securities with a weekly redemption feature that are 
currently listed on a national securities exchange, as well as all of 
those that are currently proposed to be listed, the issuer has the 
ability to issue new Index-Linked Securities from time to time at the 
indicative value at the time of such sale. The Exchange believes that 
this provides a ready supply of new Index-Linked Securities, thereby 
lessening the possibility that the market price of such securities 
would be affected by a scarcity of available Index-Linked Securities 
for sale. The Exchange believes that it also assists in maintaining a 
strong correlation between the market price and the indicative value, 
as investors will be unlikely to pay more than the indicative value in 
the open market if they can acquire Index-Linked Securities from the 
issuer at that price.
    The Exchange believes that the ability to list Index-Linked 
Securities with these characteristics without any minimum number of 
units issued or holders is important to the successful listing of such 
securities. Issuers issuing these types of Index-Linked Securities 
generally do not intend to do so by way of an underwritten offering. 
Rather, the distribution arrangement is analogous to that of an 
exchange-traded fund issuance, in that the issue is launched without 
any significant distribution event, and the float increases over time 
as investors purchase additional securities from the issuer at the then 
indicative value. Investors will generally seek to purchase the 
securities at a point when the underlying index is at a level that they 
perceive as providing an attractive growth opportunity. In the context 
of such a distribution arrangement, it is difficult for an issuer to 
guarantee its ability to sell a specific number of units on the listing 
date. However, the Exchange believes that this difficulty in ensuring 
the sale of one million units on the listing date is not indicative of 
a likely long-term lack of liquidity in the securities or, for the 
reasons set forth in the prior paragraph, of a difficulty in 
establishing a pricing equilibrium in the securities or a successful 
two-sided market.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Section 
6(b)(5), in particular,\8\ in that it is designed to promote just and 
equitable principles of trade, 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 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

    The Exchange states that no written comments on the proposed rule 
change 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) by its terms does not become operative for 30 days after the 
date of this 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) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and text of the proposed rule change, 
at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has fulfilled this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 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 Exchange requests that the Commission waive 
the 30-day operative delay and make the proposed rule change operative 
upon filing because the proposal raises no novel issues and is based on 
a previously approved proposal filed by NYSE Arca.\11\ The Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because the Exchange's 
proposed amendment would conform its listing standards for Index-Linked 
Securities with respect to minimum

[[Page 6546]]

public holders and public distribution to be substantively identical to 
the parallel listing standards of other national securities exchanges, 
which the Commission has previously approved.\12\ In addition, the 
Commission notes that it has also previously approved substantively 
identical rules for other new derivative security products.\13\ The 
Commission further believes that the proposal should benefit investors 
by creating, without undue delay, additional competition in the market 
for Index-Linked Securities. For these reasons, the Commission 
designates the proposed rule change as operative upon filing.\14\
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    \11\ See supra note 6.
    \12\ See, e.g., Section 107(A)(b) of the Company Guide for the 
American Stock Exchange LLC (``Amex''); Rule 5.2(j)(1)(A) of NYSE 
Arca Equities, Inc.; and Section 703.22(B)(1) of the Listed Company 
Manual for the New York Stock Exchange LLC.
    \13\ For example, in addition to applying to Index-Linked 
Securities, Section 107(A)(b) of the Amex Company Guide applies to 
other new derivative security products such as Index-Linked 
Exchangeable Notes.
    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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.

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-Phlx-2008-03 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2008-03. 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-Phlx-2008-03 and should be 
submitted on or before February 25, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-1962 Filed 2-1-08; 8:45 am]

BILLING CODE 8011-01-P