Document ID: SEC-2007-0491-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NYSE Arca, Inc.
Posted Date: 2007-04-03T04:00Z

[Federal Register: April 3, 2007 (Volume 72, Number 63)]
[Notices]               
[Page 15929-15930]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03ap07-101]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55546; File No. SR-NYSEArca-2007-14]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Accelerated Approval To a Proposed Rule Change to Amend Existing Rules 
for Investment Company Units To Eliminate Requirement Regarding Index 
Weighting and Calculation Methodology

March 27, 2007.

I. Introduction

    On February 8, 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 revise its generic listing standards 
applicable to Investment Company Units (``Investment Company Units'' or 
``ICUs'') \3\ to eliminate the requirement that the weighting and 
calculation methodology for the index underlying a series of ICUs must 
be one of those specified in Commentary .01(b)(1) to NYSE Arca Equities 
Rule 5.2(j)(3). The proposed rule change was published for comment in 
the Federal Register on March 5, 2007 for a 15-day comment period.\4\ 
The Commission received no comments regarding the proposal. This order 
approves the proposed rule change on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ An ICU is defined in NYSE Arca Equities Rule 5.1(b)(15) as a 
security representing an interest in a registered investment company 
that could be organized as a unit investment trust, an open-end 
management investment company, or a similar entity. A registered 
investment company is registered under the Investment Company Act of 
1940, 15 U.S.C. 80a et seq.
    \4\ See Securities Exchange Act Release No. 55339 (February 23, 
2007), 72 FR 9820.
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II. Description of the Proposal

    The Exchange has proposed to amend its ``generic'' listing standard 
pursuant to Rule 19b-4(e) under the Act \5\ for ICUs (which include 
exchange-traded funds) to eliminate the requirement that an eligible 
index be calculated and weighted according to a specific methodology.
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    \5\ 17 CFR 240.19b-4(e).
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    The Exchange currently has listing and trading standards, which 
permit the Exchange either to list and trade ICUs or trade such ICUs on 
the Exchange on an unlisted trading privileges (``UTP'') basis, subject 
to the procedures contained in Rule 19b-4(e) under the Act.\6\ The 
existence of generic listing standards allows qualifying ICUs to list 
or trade without the need to file a rule change for each security. 
Commentary .01(b)(1) to NYSE Arca Equities Rule 5.2(j)(3) currently 
requires that, if a series of ICUs is listed for trading (or traded 
pursuant to UTP) on the Exchange in reliance upon Rule 19b-4(e) under 
Rule 19b-4 under the Act,\7\ the index underlying the series must 
follow the market capitalization, modified market capitalization, 
price, equal-dollar or modified equal-dollar weighting methodology, or 
alternately, a methodology weighting components of the index based on 
any, some or all of the following: sales, cash flow, book value, and 
dividends. The proposed rule change would eliminate this standard, and, 
as a result, the Exchange would no longer consider index methodology in 
its review of an ICU's eligibility for listing and trading pursuant to 
Rule 19b-4(e) under the Act.\8\
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    \6\ See NYSE Arca Equities Rule 5.2(j)(3).
    \7\ 17 CFR 240.19b-4(e).
    \8\ 17 CFR 240.19b-4(e).
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III. Discussion

    After careful consideration, 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 \9\ and, in particular, the requirements of Section 6 of the 
Act.\10\ Specifically, the Commission finds that the proposed rule 
change is consistent with Section 6(b)(5) of the Act,\11\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, 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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    \9\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(5).
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    As the market for ICUs has expanded, the variety of weighting and 
calculation methodologies for underlying indexes has grown, limiting 
the applicability of NYSE Arca's current generic listing standards for 
ICUs. The Commission believes that eliminating the index methodology 
requirement from the Exchange's generic listing standards for ICUs will 
facilitate bringing ICUs based

[[Page 15930]]

on indexes with nontraditional weighting techniques to the market, 
encourage innovation in index construction, reduce costs to issuers and 
other market participants, and promote competition.
    The Commission believes that these goals may be furthered without 
compromising investor protection. The Commission notes that the 
numerical criteria in Commentary .01 to NYSE Arca Equities Rule 
5.2(j)(3) addressing concentration, diversity, and liquidity of an 
underlying index's components would continue to apply. For example, the 
generic listing standards for domestic indexes will continue to 
require, without limitation, that the most heavily weighted component 
stock of an index not exceed 30% of the weight of the index, and the 
five most heavily weighted component stocks of an index not exceed 65% 
of the weight of the index,\12\ and that an index include a minimum of 
13 component stocks.\13\ In addition, component stocks that in the 
aggregate account for at least 90% of the weight of the index must have 
a market value of at least $75 million and minimum monthly trading 
volume of at least 250,000 shares for each of the last six months.\14\ 
Therefore, the Commission believes that indexes underlying ICUs will 
continue to be sufficiently broad-based in scope to minimize potential 
manipulation. Additionally, ICUs and their underlying indexes would 
continue to be subject to all other requirements of NYSE Arca Equities 
Rule 5.2(j)(3).
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    \12\ See Commentary .01(a)(3) to NYSE Arca Equities Rule 
5.2(j)(3).
    \13\ See Commentary .01(a)(4) to NYSE Arca Equities Rule 
5.2(j)(3).
    \14\ See Commentary .01(a)(1) and (2) to NYSE Arca Rule 
5.2(j)(3).
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    The Commission believes that accelerating approval of the proposed 
rule change would enable the Exchange and issuers to immediately 
benefit from the expected efficiencies resultant from this proposed 
rule change without delay while at the same time still ensuring 
adequate protection for investors and the public in general. The 
Commission notes that NYSE Arca's proposal substantively tracks a 
recently approved rule change by the American Stock Exchange LLC \15\ 
and raises no new regulatory issues. Thus, the Commission finds good 
cause, consistent with Section 19(b)(2) of the Act,\16\ to grant 
accelerated approval of the proposed rule change, as amended, prior to 
the thirtieth day after the notice is published for comment in the 
Federal Register.
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    \15\ See Securities Exchange Act Release No. 55544 (March 27, 
2007). The New York Stock Exchange LLC has also proposed a parallel 
rule change, which the Commission is approving concurrently with 
this one. See Securities Exchange Act Release No. 55545 (March 27, 
2007).
    \16\ 15 U.S.C. 78s(b)(2).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-NYSEArca-2007-14) be, and is 
hereby approved on an accelerated basis.
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    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-6085 Filed 4-2-07; 8:45 am]

BILLING CODE 8010-01-P