Document ID: SEC-2009-1655-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of a Proposed Rule Change Amending Equities Rule 5.2(j)(3)
Posted Date: 2009-11-24T05:00Z

[Federal Register: November 24, 2009 (Volume 74, Number 225)]
[Notices]               
[Page 61388-61389]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24no09-84]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61022; File No. SR-NYSEArca-2009-101]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of a Proposed Rule Change Amending Equities Rule 5.2(j)(3)

November 17, 2009.
    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 November 5, 2009, NYSE Arca, Inc. (``NYSE Arca'' or the 
``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\ 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 Commentary .01 to NYSE Arca Equities 
Rule 5.2(j)(3), the initial listing standards for Investment Company 
Units. The text of the proposed rule change is attached as Exhibit 5 to 
the 19b-4 form. A copy of this filing 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 proposes to amend Commentary .01 to NYSE Arca Equities 
Rule 5.2(j)(3) to amend the index weight requirements and adopt 
notional volume traded per month \3\ to the initial listing standards 
for Investment Company Units, commonly referred to as exchange traded 
funds. The Exchange proposes to amend the minimum component stock 
weight requirement for monthly trading volumes from 90% to 70% of the 
weight of the underlying index. In addition, the Exchange's proposal to 
adopt an alternative notional volume traded per month listing standard 
is based upon NYSE Arca Equities Rule 5.2(j)(6), the Exchanges listing 
standards for Equity Index-Linked Securities.\4\
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    \3\ The notional volume traded per month is the number of shares 
traded globally in a calendar month multiplied by the monthly 
closing price.
    \4\ See Securities Exchange Act Release No. 58376 (August 18, 
2008), 73 FR 49726 (August 22, 2008) (SR-NYSEArca-2008-70).
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    Currently for U.S. indexes, Commentary .01(a)(A)(2) to Rule 
5.2(j)(3) provides that Component stocks (excluding Derivative 
Securities Products) that in the aggregate account for at least 90% of 
the weight of the index or portfolio (excluding such Derivative 
Securities Products) each shall have a minimum monthly trading volume 
during each of the last six months of at least 250,000 shares.
    The Exchange proposes to amend the minimum component stock weight 
requirements from 90% to 70% of the weight of the underlying index or 
portfolio. Further, the Exchange is proposing adopt and average minimum 
trading volume of 250,000 shares over a six month period instead of in 
each of the last six months and to adopt a notional volume traded per 
month of $25,000,000 averaged over the last six months as an option for 
meeting the listing requirements. Proposed Commentary .01(a)(A)(2) to 
Rule 5.2(j)(3) sets forth:
     Component stocks (excluding Derivative Securities 
Products) that in the aggregate account for at least 70% of the weight 
of the index or portfolio (excluding such Derivative Securities 
Products) each shall have a minimum monthly trading volume of 250,000 
shares, or minimum notional volume traded per month of $25,000,000, 
averaged over the last six months;
    Currently for international or global indexes, Commentary 
.01(a)(B)(2) to Rule 5.2(j)(3) provides that Component stocks 
(excluding Derivative Securities Products) that in the aggregate 
account for at least 90% of the weight of the index or portfolio 
(excluding such Derivative Securities Products) each shall have a 
minimum monthly trading volume during each of the last six months of at 
least 250,000 shares.
    The Exchange proposes to amend the minimum component stock weight 
requirements from 90% to 70% of the weight of the underlying index or 
portfolio. Further, the Exchange is proposing adopt and average minimum 
trading volume of 250,000 shares over a six month period instead of in 
each of the last six months and to adopt a notional volume traded per 
month of $25,000,000 averaged over the last six months as an option for 
meeting the listing requirements. Further, the Exchange proposes to 
clarify that the component stock trading volumes are determined on a 
global basis. Proposed Commentary .01(a)(B)(2) to Rule 5.2(j)(3) sets 
forth:
     Component stocks (excluding Derivative Securities 
Products) that in the aggregate account for at least 70% of the weight 
of the index or portfolio (excluding such Derivative Securities 
Products) each shall have a minimum global monthly trading volume of 
250,000 shares, or minimum global notional volume traded per month of 
$25,000,000, averaged over the last six months;
    With regard to the Exchange's proposal to amend the minimum 
component stock weight requirement for monthly trading volumes from 90% 
to 70% of the weight of the underlying index, the Exchange believes the 
proposed standard reasonably ensures that securities with substantial 
monthly trading volumes account for a substantial portion of the 
underlying index and, when applied in conjunction with the other 
applicable listing requirements, remain sufficiently broad-based in 
scope to minimize potential manipulation. The Exchange notes that the 
Commission has previously approved the listing and trading of 
Investment Company Units based upon indices that were composed of 
stocks that did not meet the 90% monthly trading volume weight.\5\ 
Instead, these

[[Page 61389]]

indices would meet the proposed 70% monthly trading volume weight 
criteria.
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    \5\ See Securities and [sic] Exchange Act Release No. 46306 
(August 2, 2002), 69 [sic] FR 51916 (August 9, 2002) (SR-NYSE-2002-
28) (approving the following funds for trading pursuant to unlisted 
trading privileges on the NYSE: (1) Vanguard Total Stock Market 
VIPERs; (2) iShares Russell 2000 Index Funds; (3) iShares Russell 
2000 Value Index Funds; and (4) iShares Russell 2000 Growth Index 
Fund); Securities Exchange Act Release No. 55953 (June 25, 2007), 72 
FR 36084 (July 2, 2007) (SR-NYSE-2007-46) (approving listing on NYSE 
of HealthShares Orthopedic Repair Exchange-Traded Fund); Securities 
Exchange Act Release No. 56695 (October 24, 2007), 72 FR 61413 
(October 30, 2007) (SR-NYSEArca-2007-111) (approving listing on NYSE 
Arca of HealthShares Ophthalmology Exchange-Traded Fund); Securities 
Exchange Act Release No. 60137 [sic] (February 27, 2009), 72 [sic] 
FR 9862 (March 6, 2009) (SR-NYSEArca-2009-13) (approving [sic] 
listing on NYSE Arca of iShares MSCI All Peru Index Fund); and 
Securities Exchange Act Release No. 60137 (June 18, 2009), 72 FR 
30351 [sic] (June 25, 2009) (SR-NYSEArca-2009-54) (approving [sic] 
listing on NYSE Arca of iShares MSCI All Peru Capped Index Fund).
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    With respect to adopting, as an alternative to monthly trading 
volume, the notional volume traded for each of the last six months to 
the initial and listing standards for both domestic and international 
indexes, the Exchange believes that notional volume traded averaged per 
month is a better measure of the liquidity of component stocks of the 
underlying index or indexes.\6\ Specifically, notional volume nullifies 
the volume discrepancies that generally occur between low priced and 
high priced stocks.\7\
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    \6\ Telephone conversation on November 12, 2009 between Timothy 
J. Malinowski, Director, NYSE Euronext and Christopher W. Chow, 
Special Counsel and Andrew Madar, Special Counsel, Commission.
    \7\ For example, a stock priced at $10 per share that trades 
2,500,000 shares in a month has a notional volume of $25,000,000. 
Conversely, a stock priced at $100 per share that trades 250,000 
shares in a month has a notional volume of $25,000,000.
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    With respect to adopting a six-month average, instead of in each of 
the last six-months, criteria for volume and notional volume, the 
Exchange believes that the averaged six month period is a better 
indicator of the current liquidity on an index and serves to eliminate 
seasonal volume fluctuations of component securities.\8\ Further, 
investors, exchange traded fund issuers and third-party index sponsors 
would also benefit from NYSE Arca's ability to list--without the delay 
associated with a stand-alone rule filing--Investment Company Units 
based on a broader group of indexes promoting competition.
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    \8\ See Footnote 4. Telephone conversation on November 12, 2009 
between Timothy J. Malinowski, Director, NYSE Euronext and 
Christopher W. Chow, Special Counsel and Andrew Madar, Special 
Counsel, Commission.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \9\ of the Securities Exchange Act of 1934 (``Act'') 
in general, and furthers the objectives of Section 6(b)(5) \10\ 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. The Exchange believes that the 
proposed rules applicable to trading pursuant to generic listing and 
trading criteria, together with the Exchange's surveillance procedures 
applicable to trading in the securities covered by the proposed rules, 
serve to foster investor protection.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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

    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 self-regulatory organization 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-2009-101 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2009-101. 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 publicly available. All 
submissions should refer to File Number SR-NYSEArca-2009-101 and should 
be submitted on or before December 15, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Florence E. Harmon,
Deputy Secretary.
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    \11\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E9-28119 Filed 11-23-09; 8:45 am]

BILLING CODE 8011-01-P