Document ID: SEC-2006-0780-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NYSE Arca, Inc.
Posted Date: 2006-06-19T04:00Z

[Federal Register: June 19, 2006 (Volume 71, Number 117)]
[Notices]               
[Page 35317-35318]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19jn06-98]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53971; File No. SR-NYSEArca-2006-22]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Order Granting Accelerated Approval of a Proposed Rule Change 
Relating to Increasing the Maximum Weighting of Certain Component 
Stocks in Indexes or Portfolios Underlying Investment Company Units

June 12, 2006.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on May 22, 2006, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by NYSE Arca. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons, and is approving the 
proposal on an accelerated basis.
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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, through its wholly owned subsidiary NYSE Arca 
Equities, Inc. (``NYSE Arca Equities''), proposes to amend its rules 
governing NYSE Arca, L.L.C., the equities trading facility of NYSE Arca 
Equities. The Exchange proposes to amend Commentary .01(a)(3) to NYSE 
Arca Equities Rule 5.2(j)(3), to increase from 25 percent to 30 percent 
the maximum weight of the most heavily weighted component stock of an 
index or portfolio underlying a series of Investment Company Units 
(``ICUs'').
    The text of the proposed rule change is available on the NYSE Arca 
Web site (http://www.nysearca.com), at the Commission's Public 

Reference Room, and the principal office of NYSE Arca.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NYSE Arca 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. NYSE Arca 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
    NYSE Arca Equities Rule 5.2(j)(3) provides listing standards for 
ICUs to permit listing and trading of these securities pursuant to Rule 
19b-4(e) under the Exchange Act.\3\ Rule 19b-4(e) provides that the 
listing and trading of a new derivative securities product by a self-
regulatory organization (``SRO'') shall not be deemed a proposed rule 
change, pursuant to Rule 19b-4(c)(1) under the Exchange Act,\4\ if the 
Commission has approved, pursuant to section 19(b) of the Exchange 
Act,\5\ the SRO's trading rules, procedures and listing standards for 
the product class that would include the new derivative securities 
product, and the SRO has a surveillance program for the product 
class.\6\ These standards are frequently referred to as ``generic'' 
listing standards.
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    \3\ 17 CFR 240.19b-4(e).
    \4\ 17 CFR 240.19b-4(c)(1).
    \5\ 15 U.S.C. 78s(b).
    \6\ See Securities Exchange Act Release No. 40761 (December 8, 
1998), 63 FR 70952 (December 22, 1998) (File No. S7-13-98).
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    In October of 1999, the Commission approved PCX Equities \7\ Rule 
5.2(j)(3), which sets forth the rules related to the listing and 
trading criteria for ICUs.\8\ In July 2001, the Commission also 
approved the Pacific Exchange's \9\ generic listing standards for the 
listing and trading, or the trading pursuant to unlisted trading 
privileges, of ICUs under PCX Equities Rule 5.2(j)(3).\10\
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    \7\ PCX Equities, Inc. was the predecessor to NYSE Arca 
Equities.
    \8\ See Securities Exchange Act Release No. 41983 (October 6, 
1999), 64 FR 56008 (October 15, 1999) (SR-PCX-98-29).
    \9\ The Pacific Exchange, Inc. was the predecessor to NYSE Arca.
    \10\ See Securities Exchange Act Release No. 44551 (July 12, 
2001), 66 FR 37716 (July 19, 2001) (SR-PCX-2001-14).
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    NYSE Arca Equities Rule 5.2(j)(3) provides that, upon the initial 
listing of a series of ICUs under Rule 19b-4(e), component stocks that 
in the aggregate account for at least 90 percent of the weight of the 
index or portfolio underlying such series must have a minimum market 
value of at least $75 million. In addition, the component stocks in the 
index or portfolio must have a minimum monthly trading volume during 
each of the last six months of at least 250,000 shares for stocks 
representing at least 90 percent of the weight of the index or 
portfolio. These standards assure that the underlying index's or 
portfolio's component stocks are generally actively traded and with 
substantial market capitalization.
    Currently, Commentary .01(a)(3) to NYSE Arca Equities Rule 
5.2(j)(3) also provides that the most heavily weighted component stock 
in an underlying index or portfolio cannot exceed 25 percent of the 
weight of the index or portfolio, and the five most heavily weighted 
component stocks cannot exceed 65 percent of the weight of the index or 
portfolio. The Exchange proposes to increase from 25 percent to 30 
percent the permissible weight of the most heavily weighted component 
stock in an underlying index or portfolio.\11\ The five most heavily 
weighted stocks would continue to be required to represent no more than 
65 percent of the weight of the index or portfolio. The Exchange states 
that this change will provide additional flexibility to issuers of ICUs 
to be listed pursuant to Rule 19b-4(e) in developing ICUs based on 
indexes or portfolios.
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    \11\ The New York Stock Exchange LLC (``NYSE'') recently 
proposed a substantially identical revision to its ICU rules. See 
SR-NYSE-2006-39, available on the NYSE Web site (http://www.nyse.com
), and infra note 18.

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    The Exchange notes that unit investment trusts and mutual funds are 
subject to Internal Revenue Code Subchapter M requirements applicable 
to regulated investment companies. In order to maintain regulated 
investment company status, these entities would be required to 
rebalance their portfolios quarterly to avoid any one stock exceeding a 
25 percent weighting in the trust's or fund's portfolio.\12\
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    \12\ According to NYSE Arca, under Subchapter M of the Internal 
Revenue Code, for a fund to qualify as a regulated investment 
company, the securities of a single issuer can account for no more 
than 25 percent of a fund's total assets, and at least 50 percent of 
a fund's total assets must be comprised of cash (including 
government securities) and securities of single issuers whose 
securities account for less than 5 percent of such fund's total 
assets.

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[[Page 35318]]

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Exchange Act,\13\ in general, and furthers the 
objectives of section 6(b)(5) of the Exchange Act,\14\ in particular, 
in that it is designed 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.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 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 Exchange Act.

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

    No written comments were neither solicited nor received.

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 Exchange 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 rules-comments@sec.gov. Please include 

File No. SR-NYSEArca-2006-22 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 No. SR-NYSEArca-2006-22. 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. Copies of such 
filing will also be available for inspection and copying at the 
principal office of NYSE Arca. 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-2006-22 and should be submitted July 10, 2006.

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

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the Exchange Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\15\ In particular, the Commission believes that the proposal 
is consistent with section 6(b)(5) of the Exchange Act,\16\ which 
requires that the rules of an exchange be 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 and protect investors and the public interest. The 
Commission believes that the proposed rule is reasonably designed to 
provide additional flexibility in listing ICUs under the Exchange's 
generic listing standards. The Commission further believes that the 
proposed rule change will serve to protect investors and the public 
interest by maintaining the size and liquidity requirements applicable 
to the securities underlying the relevant index or portfolio.
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    \15\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and a capital formation. See 
15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
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    Under section 19(b)(2) of the Exchange Act,\17\ the Commission may 
not approve any proposed rule change prior the thirtieth day after the 
date of publication of the notice of filing thereof, unless the 
Commission finds good cause for so doing. The Commission hereby finds 
good cause for approving the proposed rule change prior to the 
thirtieth day after publishing notice of the filing thereof in the 
Federal Register. The Commission notes that it has previously approved 
similar proposals by the American Stock Exchange LLC (``Amex''), and 
Chicago Board Options Exchange, Incorporated (``CBOE'') to increase to 
30 percent the permissible weight of the most heavily weighted 
component stock in an underlying index.\18\
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    \17\ 15 U.S.C. 78s(b)(2).
    \18\ See Securities Exchange Act Release Nos. 44532 (July 10, 
2001), 66 FR 37078 (July 16, 2001) (SR-Amex-2001-25) (approving an 
increase for indexes underlying Portfolio Depositary Receipts and 
Index Fund shares listed on the Amex) and 44908 (October 4, 2001), 
66 FR 52161 (October 12, 2001) (SR-CBOE-2001-38) (approving an 
increase for indexes underlying Index Portfolio Receipts and Index 
Portfolio Shares listed on the CBOE). See also Securities Exchange 
Act Release No. 53934 (June 1, 2006), 71 FR 33326 (June 8, 2006) 
(NYSE 2006-39) (approving an increase for indexes or portfolios 
underlying a series of Investment Company Units listed on NYSE).
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    For the reasons set forth above, the Commission finds good cause to 
accelerate approval of the proposed rule change pursuant to section 
19(b)(2) of the Exchange Act.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Exchange Act, that the proposed rule change (SR-NYSEArca-2006-22) is 
hereby approved on an accelerated basis.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E6-9534 Filed 6-16-06; 8:45 am]

BILLING CODE 8010-01-P