Document ID: SEC-2008-1745-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2008-12-31T05:00Z

[Federal Register: December 31, 2008 (Volume 73, Number 251)]
[Notices]               
[Page 80504-80505]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31de08-117]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59146; File No. SR-NYSEArca-2008-136]

 
Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by NYSE Arca, Inc. Amending NYSE Arca Equities Rule 5.2(j)(6), 
the Exchange's Initial Listing Standards for Equity Index-Linked 
Securities, Commodity-Linked Securities, Currency-Linked Securities, 
Fixed Income Index-Linked Securities, Futures-Linked Securities and 
Multifactor Index-Linked Securities

December 22, 2008.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on December 10, 2008, NYSE Arca, Inc. (``NYSE Arca'' 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 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\ 15 U.S.C. 78a.
    \3\ 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 5.2(j)(6), 
the Exchange's initial listing standards for Equity Index-Linked 
Securities, Commodity-Linked Securities, Currency-Linked Securities, 
Fixed Income Index-Linked Securities, Futures-Linked Securities and 
Multifactor Index-Linked Securities. 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 those 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 parts 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 is proposing to amend NYSE Arca Equities Rule 
5.2(j)(6), the Exchange's initial listing standards for Equity Index-
Linked Securities, Commodity-Linked Securities, Currency-Linked 
Securities, Fixed Income Index-Linked Securities, Futures-Linked 
Securities and Multifactor Index-Linked Securities (``Index-Linked 
Securities''), to provide for greater flexibility in the listing 
criteria for such securities, as set forth below.
    Currently, Rule 5.2(j)(6)(A)(d) provides that the payment at 
maturity of a cash amount for Index-Linked Securities may or may not 
provide for a multiple of the direct or inverse performance of an 
underlying Reference Asset,\4\ and in no event will a loss or negative 
payment at maturity be accelerated by a multiple that exceeds twice the 
performance of an underlying Reference Asset.
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    \4\ As defined in Rule 5.2(j)(6), ``Reference Assets'' include 
``Equity Reference Assets,'' which consist of an underlying index or 
indexes of equity securities; ``Commodity Reference Assets,'' which 
consist of a basket or index of one or more physical commodities or 
commodity futures, options or other commodity derivatives or 
Commodity-Based Trust Shares (as defined in Rule 8.201); ``Currency 
Reference Assets,'' which include a basket or index of one or more 
currencies, or options or currency futures or other currency 
derivatives or Currency Trust Shares (as defined in Rule 8.202); 
``Fixed Income Reference Asset'' which consist of one or more 
indexes or portfolios of notes, bonds, debentures or evidence of 
indebtedness that include, but are not limited to, U.S. Department 
of Treasury securities, government-sponsored entity securities, 
municipal securities, trust preferred securities, supranational debt 
and debt of a foreign country or a subdivision thereof; ``Futures 
Reference Asset'' which consists of an index of (a) futures on 
Treasury Securities, GSE Securities, supranational debt and debt of 
a foreign country or a subdivision thereof, or options or other 
derivatives on any of the foregoing; or (b) interest rate futures or 
options or derivatives; and ``Multifactor Reference Asset'' which 
consists of any combination of two or more Equity Reference Assets, 
Commodity Reference Assets, Currency Reference Assets, Fixed Income 
Reference Assets or Futures Reference Assets.
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    The Exchange proposes to amend Rule 5.2(j)(6)(A)(d) to allow the 
Exchange to consider for listing and trading Index-Linked Securities 
that provide that in no event will a loss or negative payment at 
maturity be accelerated by a multiple that exceeds three times the 
performance of an underlying Reference Asset.
    The Exchange proposes these changes in order to allow the Exchange 
to initially consider for listing and trading Index-Linked Securities 
that employ investment strategies similar or analogous to certain 
Exchange-Traded Funds which list and trade on the Exchange pursuant to 
NYSE Arca Equities Rule 5.2(j)(3).\5\ Currently, Exchange-Traded Funds 
are able to seek daily investment results, before fees and expenses, 
that correspond to three times the inverse or opposite of the daily 
performance (-300%) of the underlying indexes.
Limitation on Leverage
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    \5\ See Securities Exchange Act Release No. 58825 (October 21, 
2008), 73 FR 63756 (October 27, 2008) (SR-NYSEArca-2008-89). Order 
approving inverse fund shares that cannot exceed -300% of the 
inverse or opposite of the daily performance of an underlying index.
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    In connection with Index-Linked Securities that seek to provide 
investment results, before fees and expenses, in an amount that exceeds 
-300% of the percentage performance of the underlying benchmark index, 
the Exchange's proposal would continue to require specific Commission 
approval pursuant to section 19(b)(2) of the Act.\6\ In particular, 
NYSE Arca Equities Rule 5.2(j)(6) would expressly prohibit Index-Linked 
Securities that seek to provide investment results, before fees and 
expenses, in an amount that exceeds -300% of the percentage performance 
of the underlying benchmark index, from being approved by the Exchange 
for listing and trading pursuant to Rule 19b-4(e) under the Act.\7\
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    \6\ 15 U.S.C. 78s(b)(2).
    \7\ 17 CFR 240.19b-4(e).
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    The Exchange believes that a -300% limitation will permit Index-
Linked Securities to provide investors with an incremental additional 
degree of leverage similar to instruments available to professional 
investors to manage risk. In addition, recommendations to investors of 
transactions in Index-Linked Securities are subject to the customer 
suitability requirements of NYSE Arca Equities Rule 9.2, as discussed 
below.

[[Page 80505]]

    The Exchange notes that NYSE Arca Equities Rule 9.2(a) provides 
that an ETP Holder, before recommending a transaction in Index-Linked 
Securities, must have reasonable grounds to believe that the 
recommendation is suitable for their customer based on any facts 
disclosed by the customer as to its other security holdings and as to 
its financial situation and needs. Further, the rule provides, with a 
limited exception, that prior to the execution of a transaction 
recommended to a non-institutional customer, the ETP Holder shall make 
reasonable efforts to obtain information concerning the customer's 
financial status, tax status, investment objectives, and any other 
information that such ETP Holder believes would be useful to make a 
recommendation. Prior to the commencement of trading, the Exchange will 
inform its ETP Holders in an Information Bulletin of this suitability 
requirement. Specifically, ETP Holders will be reminded in the 
Information Bulletin that, in recommending transactions in these 
securities, they must have a reasonable basis to believe that the 
customer can evaluate the special characteristics, and is able to bear 
the financial risks, of such investment.
    The Exchange believes that these changes will allow the Exchange 
greater flexibility in the listing of Index-Linked Securities, which 
will allow the Exchange to offer investors more investment options and 
to remain competitive in the marketplace. The Exchange believes that 
investors will continue to be protected because the payment at maturity 
cannot be based on a multiple that exceeds three times the inverse 
performance of an underlying Reference Asset.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) \8\ of the Act, in general, and furthers the 
objectives of section 6(b)(5),\9\ 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. Specifically, the 
Exchange believes that the proposed change to the standards for listing 
and trading Index-Linked Securities enhances the investment 
opportunities for our users by providing them with an additional degree 
of leverage, while also limiting potential losses or negative payments 
to -300%.\10\
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ See e-mail from Andrew Stevens, Chief Counsel--U.S. 
Equities & Derivatives, NYSE Arca, Inc., to Mitra Mehr, Special 
Counsel, Division of Trading and Markets, Commission, dated December 
22, 2008.
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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

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

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 Exchange consents, the Commission will:
    (A) By order approve the 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 2008-136 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-2008-136. 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-NYSEArca-2008-136 and should 
be submitted on or before January 21, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Florence E. Harmon,
Acting Secretary.
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    \11\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E8-31098 Filed 12-30-08; 8:45 am]

BILLING CODE 8011-01-P