Document ID: SEC-2007-0890-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-07-02T04:00Z

[Federal Register: July 2, 2007 (Volume 72, Number 126)]
[Notices]               
[Page 36084-36091]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02jy07-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55953; File No. SR-NYSE-2007-46]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change, as Modified by Amendment No. 1 Thereto, Relating to the 
Listing and Trading of Shares of the HealthShares\TM\ Orthopedic Repair 
Exchange-Traded Fund

June 25, 2007.
    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 May 21, 2007, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared substantially by NYSE. On May 
31, 2007, NYSE filed Amendment No. 1 to the proposed rule change. This 
order provides notice of the proposed rule change, as amended, and 
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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the 
HealthShares\TM\ Orthopedic Repair Exchange-Traded Fund (the 
``Fund'').\3\ The text of the proposal is available at NYSE, the 
Commission's Public Reference Room, and http://www.nyse.com.

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    \3\ The Fund is registered under the Investment Company Act of 
1940 (the ``1940 Act'').
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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, the Exchange 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 IV below, and the most significant aspects of such statements are 
set forth in Sections A, B, and C below.

[[Page 36085]]

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

1. Purpose
    The Exchange proposes to list and trade the shares of the Fund (the 
``Shares''), which are Investment Company Units, as such term is 
defined in Section 703.16 of the NYSE Listed Company Manual.\4\ The 
Fund can invest in both U.S. securities and non-U.S. securities not 
listed on a national securities exchange.\5\ Although Section 703.16 of 
the NYSE Listed Company Manual permits the Exchange to either 
originally list and trade Investment Company Units or trade Investment 
Company Units pursuant to unlisted trading privileges,\6\ the Fund 
Shares do not meet the ``generic'' listing requirements of Section 
703.16 of the NYSE Listed Company Manual (permitting listing in 
reliance upon Rule 19b-4(e) \7\ under the Act) because the Index (as 
defined herein) underlying the Fund does not meet the initial listing 
requirements of Section 703.16(C)(2)(b)(ii) of the Listed Company 
Manual.\8\ Therefore, NYSE has filed the instant proposed rule change 
to obtain Commission approval to list and trade the Shares on the 
Exchange pursuant to Section 19(b)(2) of the Act \9\ and Rule 19b-4 
thereunder.\10\
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    \4\ Section 703.16 of the NYSE Listed Company Manual defines an 
Investment Company Unit as a security that represents 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.
    \5\ The Exchange represents that, as of May 7, 2007, all stocks 
underlying the Index (as defined herein) were listed on a national 
securities exchange (NYSE or The Nasdaq Stock Market LLC); however, 
as noted above, any changes to the Index may include non-U.S. stocks 
not listed on a national securities exchange.
    \6\ See Securities Exchange Act Release Nos. 55113 (January 17, 
2007), 72 FR 3179 (January 24, 2007) (SR-NYSE-2006-101) (approving 
amendments to generic listing standards for series of Investment 
Company Units that are based on international or global indexes, or 
on indexes described in rules previously approved by the 
Commission); 43679 (December 5, 2000), 65 FR 77949 (December 13, 
2000) (SR-NYSE-00-46) (approving generic listing standards to permit 
the listing and trading of Investment Company Units under Rule 19b-
4(e) under the Act); and 36923 (March 5, 1996), 61 FR 10410 (March 
13, 1996) (SR-NYSE-95-23) (approving the original listing standards 
for units of trading that represent interests in a registered 
investment company that would be organized either as an open-end 
management investment company or as a unit investment trust).
    \7\ 17 CFR 240.19b-4(e).
    \8\ Section 703.16(C)(2)(b)(ii) of the NYSE Listed Company 
Manual requires that, upon the initial listing of any series of 
Investment Company Units, the component stocks that in the aggregate 
account for at least 90% of the weight of the index or portfolio 
each must have minimum worldwide trading volume during each of the 
last six months of at least 250,000 shares. The Exchange represents 
that Index component stocks each having a worldwide monthly trading 
volume of at least 250,000 shares in the aggregate account for 
approximately 86.2% of the weight of the Index during each month 
from November 2006 through April 2007. Because such percentage 
misses the minimum required threshold by approximately 3.8%, the 
Shares cannot be listed and traded pursuant to Section 703.16 of the 
NYSE Listed Company Manual. The Exchange represents that the Fund 
Shares otherwise meet all of the other ``generic'' listing standards 
under Section 703.16 of the NYSE Listed Company Manual. Telephone 
conversation between Michael Cavalier, Assistant General Counsel, 
NYSE, and Edward Cho, Special Counsel, Division of Market Regulation 
(``Division''), Commission, on June 21, 2007 (``June 21 
Confirmation'').
    \9\ 15 U.S.C. 78s(b)(1).
    \10\ 17 CFR 240.19b-4.
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    The Fund will be based on the HealthSharesTM Orthopedic 
Repair Index (``Underlying Index'' or ``Index'').\11\ XShares Advisors, 
LLC is the investment adviser (the ``Advisor'') to the Fund.\12\ BNY 
Investment Advisors (the ``Sub-Advisor'') acts as the investment sub-
advisor to the Fund. The Sub-Advisor is registered under the Advisers 
Act and is responsible for the day-to day management of the Fund's 
portfolio, which involves principally reconfiguring the portfolio of 
the Fund, typically quarterly, to reflect any reconfiguration in the 
Underlying Index for the Fund by the Index Administrator (as defined 
herein). While the Fund is managed by the Advisor or Sub-Advisor, the 
Corporation's Board of Directors has overall responsibility for the 
Fund's operations. Standard and Poor's, a division of The McGraw Hill 
Companies, Inc., is the index administrator (the ``Index 
Administrator'') for the Index. The Index Administrator is responsible 
for maintaining the Index as described below.\13\ ALPS Distributors, 
Inc. is a registered broker-dealer and acts as distributor and 
underwriter (the ``Distributor'') of the Creation Units (as defined 
herein) of the Shares.\14\ The Distributor distributes the Shares on an 
agency basis.
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    \11\ HealthShares\TM\, Inc. (the ``Corporation'') is an open-end 
management company with twenty other series of underlying fund 
portfolios that offer shares known as HealthShares\TM\ which are 
similar to the Shares and are currently listed and trading on the 
Exchange.
    \12\ The Advisor is registered as an ``investment adviser'' 
under Section 203 of the Investment Advisers Act of 1940 (the 
``Advisers Act''). See 15 U.S.C. 80b-3.
    \13\ S&P is neither a registered broker-dealer nor an 
``affiliated person,'' as defined in Section 2(a)(3) of the 1940 
Act, or an affiliated person of an affiliated person of the Fund, 
Advisor, Sub-Advisor, Distributor (as defined herein), or the 
Corporation. See 15 U.S.C. 80a-2(a)(3).
    \14\ The Exchange represents that the Distributor is not an 
``affiliated person'' of the Advisor, the Sub-Advisor, the Fund, or 
the Corporation.
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    Description of the Underlying Index and the Fund. The Exchange 
states that the Underlying Index uses a patent-pending investment 
approach known as ``Vertical Investing.'' Vertical Investing seeks to 
categorize companies within a particular healthcare, life sciences, or 
biotechnology index by focusing on each company's business activities 
with regard to the diagnosis of diseases, the developments of drugs, 
treatments, therapies, delivery systems, and the development of 
enabling/research tools and technologies for use in the healthcare, 
life sciences, or biotechnology sectors. The Underlying Index for the 
Fund has been designed around verticals in the area of orthopedic 
repair.
    Based on its own proprietary intellectual model, the Index uses 
established specific, defined characterization/inclusion/exclusion 
criteria (the ``Index Methodology'') that an issuer must meet in order 
to be included in the Underlying Index. The Index Administrator employs 
the Index Methodology to determine the composition of the Underlying 
Index. When determining the composition of the Underlying Index, the 
Index Administrator relies on many sources of information, including 
information obtained from the BioCentury and MedTrack databases. The 
BioCentury and MedTrack databases are independent, generally available 
databases that provide a vast amount of data for healthcare, life 
sciences, and biotechnology companies, including information regarding 
products, clinical trials, pipeline development, patent, and other 
information. The Index Methodology is publicly available on the Fund's 
Web site at http://www.healthsharesinc.com. Any change to the Index 

Methodology will be posted on the Fund's Web site at least 60 days 
prior to implementation of such change. For the equity components 
underlying the Index, the market capitalization range is generally from 
$100 million to $20 billion. Typically, the largest of these companies 
(determined by market capitalization) are included in the Index, with a 
minimum of 22 companies in the Index.\15\ The initial companies

[[Page 36086]]

selected for inclusion are weighted equally at inception and are 
thereafter weighted based upon the individual company's market value 
relative to the overall market value of the Index (i.e., price 
weighted). Maximum weighting for any security in the Index is typically 
15%. When a company's weighting exceeds 15% of the Index, the Index 
Administrator will reduce such company's weighting to 10%, with the 5% 
``excess'' applied equally to all remaining component securities in the 
Underlying Index. Minimum weighting for a security in the Index is 
2.5%. If a security's weighting falls below 2.5%, the Index 
Administrator will increase the security's weighting to its initial 
weighting or 5%, whichever is less, with the required increment taken 
equally from all the remaining component securities. Information about 
the Index, including the component securities in the Index and value of 
the securities in the Index are posted throughout the trading day at 
least every 15 seconds and are available through Reuters, a market data 
vendor.
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    \15\ The Exchange states that, as of May 7, 2007, the Index had 
a total market capitalization of approximately $52.2 billion. The 
average total market capitalization was approximately $2.4 billion. 
The Index's top three holdings were Zimmer Holdings, Smith & Nephew 
PLC (ADR), and DENTSPLY International. The ten largest constituents 
by market capitalization represented approximately 52.2% of the 
Index weight. The five highest weighted stocks, which represented 
34.1% of the Index weight, had an average daily trading volume in 
excess of 7.3 million shares during the period November 2006 through 
April 2007. 86.2% of the Index had worldwide monthly trading volume 
of 250,000 shares during each of the last 6 months (November 2006 
through April 2007). The average monthly trading volume for the 
Index stocks over the last 6 months was 145.5 million shares.
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    The Fund's overall investment objective is to track the 
performance, before fees and expenses, of the Index. The Adviser uses a 
passive, or indexing, approach in managing the Fund. The Fund will 
invest at least 90% of its assets in the common stocks of companies in 
the Index, or in American Depositary Receipts (``ADRs'') or Global 
Depositary Receipts (``GDRs'') based on securities of international 
companies in the Index. Because the Index is comprised only of stocks 
as indicated by its name (i.e., only companies associated with the 
orthopedic repair business are contained in the Index), the Fund will 
invest at least 90% of its assets in such companies. The Fund will 
provide shareholders with at least 60 days' notice of any change in 
these policies. The Fund may also invest up to 10% of its assets in 
futures contracts, options on futures contracts, options, swaps on 
securities of companies in the Index, as well as cash and cash 
equivalents, such as money market instruments (subject to applicable 
limitations of the 1940 Act). The Fund will attempt to replicate the 
Index by matching the weighting of securities in its portfolio with 
such securities' weightings in the Index. In managing the Fund, the 
Advisor seeks a correlation of 0.95 or better between the Fund's 
performance and the performance of its Underlying Index. A figure of 
1.00 would mean perfect correlation.
    From time to time, it may not be possible, for regulatory or other 
legal reasons, to replicate the Index, and in such cases, the Advisor 
may pursue a sampling strategy in managing the portfolio. Pursuant to 
this strategy, the Fund may invest the remainder of its assets in 
securities of companies not included in the Index if the Advisor 
believes that such securities will assist the Fund in tracking the 
Index. If the Fund pursues a sampling strategy, it will continue to 
invest at least 90% of its assets in the common stocks, ADRs, or GDRs 
of the companies in the Index.
    Transaction expenses, including operational processing and 
brokerage costs, will be incurred by the Fund when investors purchase 
or redeem Creation Units ``in-kind'' and such costs have the potential 
to dilute the interests of the Fund's existing shareholders. Hence, the 
Fund will impose purchase or redemption transaction fees (``Transaction 
Fees'') in connection with effecting such purchases or redemptions. The 
exact amounts of such Transaction Fees will be determined separately 
for the Fund and described in the Fund's Prospectus.
    Creations and Redemptions. The Fund will continuously issue its 
Shares in one or more groups of a fixed number of Shares (i.e., 100,000 
Shares). Each such group of Shares is called a ``Creation Unit,'' and 
such fixed number will be set forth in the Prospectus for the Fund. The 
initial price per Share of the Fund is expected to be approximately 
$25. Accordingly, the initial price of a Creation Unit would be 
approximately $2,500,000.\16\
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    \16\ June 21 Confirmation.
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    All orders to purchase Shares in Creation Units must be placed with 
the Distributor by or through a ``Participating Organization'' which 
has entered into a participant agreement with the Distributor and is 
either (1) a ``Participating Party,'' i.e., a broker-dealer or other 
participant in the Continuous Net Settlement System of the National 
Securities Clearing Corporation (the ``Clearing Process''), a clearing 
agency registered with the Commission, or (2) a participant in the 
Depository Trust Company (``DTC''). A Participating Organization is not 
required to be a member of an exchange.
    Payment with respect to Creation Units placed through the 
Distributor will be made by the purchasers generally by an ``in-kind'' 
deposit with the Corporation of a basket of stocks that are part of the 
Fund's Underlying Index (``Deposit Securities'') together with an 
amount of cash specified by the Advisor or the Sub-Advisor in the 
manner described below (the ``Balancing Amount'').\17\ The deposit of 
the requisite Deposit Securities, the Balancing Amount, and any 
Transaction Fees are collectively referred to herein as a ``Portfolio 
Deposit.''
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    \17\ The Balancing Amount is an amount equal to the difference 
between (1) the net asset value (``NAV'') per Creation Unit of the 
Fund and (2) the total aggregate market value per Creation Unit of 
the Deposit Securities (such value referred to herein as the 
``Deposit Amount''). With respect to purchases of Creation Units, 
the Balancing Amount serves the function of compensating for 
differences, if any, between the NAV per Creation Unit and the 
Deposit Amount.
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    The Advisor will make available on each business day at http://www.healthsharesinc.com
,\18\ prior to the opening of trading on the 

Exchange, the list of the names and the required number of shares of 
each Deposit Security included in the current Portfolio Deposit (based 
on information at the end of the previous business day) for the Fund 
(the ``Creation List''). Such Portfolio Deposit will be applicable, 
subject to any adjustments to the Balancing Amount, as described below, 
in order to effect purchases of Creation Units of the Fund until such 
time as the next-announced Portfolio Deposit composition is made 
available. The Advisor also will make available on each business day, 
prior to the opening of trading on the Exchange, the list of securities 
in the Fund's portfolio holdings that an investor who tenders a 
Creation Unit will receive as redemption proceeds (``Redemption 
Securities''). This list is referred to as the ``Redemption List,'' as 
discussed below. The Creation List, Redemption List, Balancing Amount, 
and the Cash Redemption Payment (as defined herein), each as created by 
the Sub-Advisor, also are made available to Participating Parties upon 
request through the facilities of the Clearing Process.
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    \18\ Telephone conversation between Michael Cavalier, Assistant 
General Counsel, NYSE, and Edward Cho, Special Counsel, Division, 
Commission, on May 30, 2007.
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    The identity and number of shares of the Deposit Securities 
required for the Portfolio Deposit for the Fund will change as re-
balancing adjustments and corporate action events are reflected from 
time to time by the Advisor or the Sub-Advisor with a view to the 
investment objective of the Fund. The composition of the Deposit 
Securities may also change in response to adjustments to the weighting 
or composition of the component

[[Page 36087]]

securities in the Index. The adjustments described above also will 
reflect changes in the composition of the Index resulting from stock 
splits and other corporate actions.
    In addition, the Corporation reserves the right with respect to the 
Fund to permit or require the substitution of an amount of cash (i.e., 
a ``cash in lieu'' amount) to be added to the Balancing Amount to 
replace any Deposit Security which: (1) May be unavailable or not 
available in sufficient quantity for delivery to the Corporation upon 
the purchase of Shares in Creation Units; (2) may not be eligible for 
transfer through the Clearing Process; or (3) may not be eligible for 
trading by a Participating Organization or the investor on whose behalf 
the Participating Organization is acting. When such cash purchases of 
Creation Units are available or specified for the Fund, such purchases 
would occur in essentially the same manner as ``in-kind'' purchases of 
the Shares. In the case of a cash purchase, the investor must pay the 
cash equivalent of the Deposit Securities it would otherwise be 
required to provide through an ``in-kind'' purchase, plus the same 
Balancing Amount required to be paid by an ``in-kind'' purchaser. In 
addition, trading costs, operational processing costs, and brokerage 
commissions associated with using cash to purchase the requisite 
Deposit Securities will be incurred by the Fund and will affect the 
value of all Shares. Hence the Advisor, subject to the approval of the 
Board of Directors of the Corporation, may adjust the relevant 
Transaction Fee to defray any such costs and prevent shareholder 
dilution within specified parameters.
    The Participating Organization must make available on or before the 
contractual settlement date by means satisfactory to the Corporation 
immediately-available or same-day funds estimated by the Corporation to 
be sufficient to pay the Balancing Amount next determined after 
acceptance of the purchase order, together with the applicable 
Transaction Fee. Any excess funds would be returned following 
settlement of the Creation Unit purchase.
    Once the Corporation has accepted an order, upon the next 
determination of the NAV per Share of the Fund, the Corporation will 
confirm the issuance, against receipt of payment, of a Creation Unit of 
the Fund at such NAV. The Distributor would then transmit a 
confirmation of acceptance to the Participating Organization that 
placed the order. A Creation Unit would not be issued until the 
transfer of good title to the Corporation of the Deposit Securities and 
the payment of the Balancing Amount have been completed (subject to 
certain exceptions).
    Beneficial owners may sell their Shares in the secondary market, 
but must accumulate enough Shares to constitute a Creation Unit in 
order to redeem through a Participating Organization. Redemption orders 
must be placed by or through a Participating Organization. Creation 
Units will be redeemable at their NAV per Share next determined after 
receipt of a request for redemption by the Corporation. The Corporation 
has the right to make redemption payments in respect of the Fund in 
cash, ``in-kind,'' or a combination of both, provided the value of its 
redemption payments on a Creation Unit basis equals the NAV, times the 
appropriate number of Shares of the Fund. The Corporation currently 
contemplates that Creation Units of the Fund will be redeemed 
principally ``in-kind'' (together with a balancing cash payment), 
except in certain circumstances.
    In some instances, the Creation List may differ slightly from the 
Redemption List. The Corporation will also deliver to the redeeming 
Beneficial Owner in cash the ``Cash Redemption Payment,'' which on any 
given business day will be an amount calculated in the same manner as 
that for the Balancing Amount, although the actual amounts may differ 
if the Redemption List is not identical to the Creation List applicable 
for purchases on the same day. To the extent that the Redemption 
Securities on the Redemption List have a value greater than the NAV of 
the Shares being redeemed, a cash payment equal to the difference is 
required to be paid by the redeeming party to the Corporation. The 
Corporation may also make redemptions in cash in lieu of transferring 
one or more Redemption Securities to a redeemer if the Corporation 
determines, in its discretion, that such method is warranted. This 
could occur, for example, when a redeeming entity is restrained by 
regulation or policy from transacting in certain Redemption Securities, 
such as the presence of such Redemption Securities on a redeeming 
investment banking firm's restricted list.
    Redemption of Shares in Creation Units will be subject to a 
Transaction Fee imposed in the same amount and manner as the 
Transaction Fee incurred in purchasing such Shares. Redemption of 
Shares may be made either through the Clearing Process or through the 
facilities of DTC.
    Dividends and Distributions. Dividends from net investment income 
will be declared and paid at least annually by the Fund in the same 
manner as by other open-end investment companies. Dividends will be 
paid to beneficial owners of record in the manner described below. 
Distributions of realized capital gains, if any, generally will be 
declared and paid once a year, but the Fund may make distributions on a 
more frequent basis to comply with certain distribution requirements.
    Dividends and other distributions on the Shares will be distributed 
on a pro rata basis to beneficial owners of such Shares. Dividend 
payments will be made through the DTC and the DTC Participants to 
beneficial owners on the record date with amounts received from the 
Fund.\19\
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    \19\ The Exchange states that the Corporation will not make the 
DTC book-entry dividend reinvestment service available for use by 
beneficial owners for reinvestment of their cash proceeds, but 
certain individual brokers may make a dividend reinvestment service 
available to their clients. The Corporation's disclosure documents 
will inform investors of this fact and direct interested investors 
to contact their brokers to ascertain the availability and a 
description of such a service through such brokers.
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    Shareholder Reports. The Corporation will furnish to the DTC 
participants for distribution to beneficial owners of Shares of the 
Fund notifications with respect to each distribution, as well as an 
annual notification as to the tax status of the Fund's distributions. 
The Corporation will also furnish to the DTC participants for 
distribution to beneficial owners of the Shares the Corporation's 
annual report containing audited financial statements, as well as 
copies of annual and semi-annual shareholder reports. [FEDREG][VOL]*[/
VOL][NO]*[/NO][DATE]*[/DATE][NOTICES] [NOTICE][PREAMB][AGENCY]*[/
AGENCY][SUBJECT]*[/SUBJECT] ?>
    Availability of Information Regarding the Shares and Underlying 
Index. The Exchange, through the facilities of the Consolidated Tape 
Association or a major market data vendor, will disseminate at least 
every 15 seconds during Exchange trading hours an amount per Share 
representing the sum of (1) the estimated Balancing Amount and (2) the 
current value of the Deposit Securities, on a per-Share basis. This 
amount is referred to herein as the Intraday Indicative Value 
(``IIV''). In addition, the value of the Underlying Index will be 
updated intra-day on a real-time basis as individual component 
securities change in price and will be disseminated at least every 15 
seconds during Exchange trading hours by one or more major market data 
vendors. The value for the Underlying Index also will be disseminated 
by one or more major market data vendors once each trading day based on 
closing prices in the relevant exchange market.
    If the Index includes non-U.S. stocks not listed on a national 
securities

[[Page 36088]]

exchange, there may be an overlap in trading hours between the foreign 
and U.S. markets with respect to the Fund. In such a case, the 
applicable IIV would be updated at least every 15 seconds to reflect 
price changes in the applicable foreign market or markets, with such 
prices converted into U.S. dollars based on the currency exchange rate. 
When the foreign market or markets are closed and U.S. markets are 
open, the IIV would be updated at least every 15 seconds to reflect 
changes in currency exchange rates after the foreign market closes. The 
IIV will also include the applicable cash component for the Fund.
    The NAV for the Fund will be calculated by BNY Asset Management 
between 4:30 p.m. and 6:30 p.m. Eastern Time (``ET'') each trading day, 
and, once calculated, BNY Asset Management and the Fund will 
disseminate the NAV so that it is available to all market participants 
at the same time.\20\ The updated NAV will be available on the 
Corporation's Web site at the same time that the NAV is made available 
to other market participants. The Corporation's Web site will also 
include: (1) The Fund's Prospectus and Statement of Additional 
Information; (2) information regarding the Index; (3) the prior 
business day's NAV; (4) the mid-point of the bid-ask spread at the time 
of calculation of the NAV (the ``Bid-Ask Price''); \21\ (5) a 
calculation of the premium or discount to the Bid-Ask Price at the time 
of calculation of the NAV against such NAV; (6) the component 
securities of the Index; and (7) a description of the methodology used 
in the foregoing computations (including weighting and number of Shares 
held).
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    \20\ The Exchange represents that if the NAV is not disseminated 
to all market participants at the same time, the Exchange will halt 
trading in the Fund Shares.
    \21\ The Bid-Ask Price of the Fund is determined using the 
highest bid and the lowest offer on the Exchange on which the Shares 
are listed for trading.
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    The Exchange states that the closing prices of the Fund's Deposit 
Securities are readily available from, as applicable, the relevant 
exchange, automated quotation systems, and published or other public 
sources or on-line information services that are major market data 
vendors, such as Quotron, Bloomberg, or Reuters. Similarly, information 
regarding market, prices, and volume of the Shares will be broadly 
available on a real-time basis throughout the trading day. The previous 
day's closing price and volume information for the Shares will be 
published daily in the financial sections of many newspapers.
    Trading Rules and Criteria for Initial and Continued Listing. The 
Fund Shares will trade as equity securities and will therefore be 
subject to the Exchange rules governing the trading of equity 
securities.\22\ The Shares will trade on the Exchange from 9:30 a.m. 
until 4:15 p.m. ET. The minimum price variation for quoting will be 
$.01.
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    \22\ E-mail from Michael Cavalier, Assistant General Counsel, 
NYSE, to Edward Cho, Special Counsel, Division, Commission, dated 
June 4, 2007 (confirming the Exchange rules that would govern the 
trading of the Shares).
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    Although the Fund does not meet the initial listing requirements of 
Section 703.16(C)(2)(b) of the NYSE Listed Company Manual, the Exchange 
represents that the Fund will be subject to the criteria for continued 
listing of Investment Company Units under Section 703.16(H) of the NYSE 
Listed Company Manual.\23\ A minimum of one Creation Unit (100,000 
shares) will be required to be outstanding at the start of trading. 
This minimum number of Shares of the Fund required to be outstanding at 
the start of trading will be comparable to requirements that have been 
applied to previously traded series of Investment Company Units.
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    \23\ June 21 Confirmation.
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    Information Memo. The Exchange will distribute an Information Memo 
(``Memo'') to its members in connection with the trading of the Shares 
of the Fund. The Memo will discuss the special characteristics and 
risks of trading this type of security. In addition, the Memo, among 
other things, will discuss what the Fund is, how the Fund's shares are 
created and redeemed, the requirement that members and member firms 
deliver a prospectus or product description to investors purchasing 
shares of the Fund prior to or concurrently with the confirmation of a 
transaction (referring members and member organizations to NYSE Rule 
1100(b)),\24\ the applicable Exchange rules, dissemination information, 
trading information, and the applicable suitability rules (including 
NYSE Rule 405).\25\ The Memo will also discuss exemptive, no-action, 
and interpretive relief granted by the Commission from Section 11(d)(1) 
and certain other rules under the Act, if applicable.
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    \24\ The Exchange states that the Commission has granted the 
Corporation an exemption from certain prospectus delivery 
requirements under Section 24(d) of the 1940 Act. See Investment 
Company Act of 1940 Release No. 27594 (December 7, 2006), 2006 SEC 
LEXIS 2920 (December 15, 2006) (812-13264) (``Exemptive Order''). 
The Exchange further states that any product description used in 
reliance on the Exemptive Order would comply with all 
representations made therein and all conditions thereto. The Memo 
will advise members and member organizations that delivery of a 
prospectus to customers in lieu of a product description would 
satisfy the requirements of NYSE Rule 1100(b), which sets forth 
certain product description delivery requirements that apply only to 
a series of Investment Company Units as to which the sponsor or 
other appropriate party has obtained an exemption from Section 24(d) 
of the 1940 Act.
    \25\ Specifically, the Memo to members will note that, before an 
Exchange member, member organization, or employee thereof recommends 
a transaction in Fund Shares, a determination must be made that the 
recommendation is in compliance with all applicable Exchange and 
Federal rules and regulations, including due diligence obligations 
under NYSE Rule 405 (Diligence as to Accounts).
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    Trading Halts. In order to halt the trading of the Shares, the 
Exchange may consider, among other things, factors such as the extent 
to which trading is not occurring in an underlying security(ies) and 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. In addition, 
trading in the Fund's Shares is subject to trading halts caused by 
extraordinary market volatility pursuant to NYSE Rule 80B. The Exchange 
also may halt trading in the Fund if the Index Value or IIV applicable 
to the Fund is no longer calculated or disseminated, as provided by 
NYSE Rule 1100(f)(1).\26\
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    \26\ NYSE Rule 1100(f)(1) states, in relevant part, that if the 
estimate, updated at least every 15 seconds, of the IIV or the Index 
value applicable to a series of Investment Company Units is not 
being disseminated as required, the Exchange may halt trading during 
the day in which the interruption to the dissemination of the IIV or 
the Index value occurs. If the interruption to the dissemination of 
the IIV or the Index value persists past the trading day in which it 
occurred, the Exchange will halt trading no later than the beginning 
of the trading day following the interruption. See also Section 
703.16(H) of the NYSE Listed Company Manual (setting forth 
additional circumstances that could trigger the suspension of 
trading and delisting of the Shares).
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    Surveillance. The Exchange will utilize its existing surveillance 
procedures applicable to equity securities to monitor trading of the 
Shares of the Fund. Surveillance procedures applicable to trading of 
the Shares are comparable to those applicable to other Investment 
Company Units currently trading on the Exchange. The Exchange 
represents that such surveillance procedures are adequate to properly 
monitor the trading of the Fund Shares. The Exchange's current trading 
surveillance focuses on detecting securities trading outside their 
normal patterns. When such situations are detected, surveillance 
analysis follows, and investigations are opened, where appropriate, to 
review the behavior of all relevant parties for all relevant trading 
violations. The Exchange may also obtain trading information via the 
Intermarket Surveillance Group (``ISG'') from other exchanges who are 
members or affiliate members of ISG.

[[Page 36089]]

2. Statutory Basis
    The proposed rule change is consistent with Section 6 of the 
Act,\27\ in general, and furthers the objectives of Section 
6(b)(5),\28\ in particular, in that it is 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, in general, to protect 
investors and the public interest.
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    \27\ 15 U.S.C. 78f.
    \28\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
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 has neither solicited for nor received any written 
comments on the proposed rule change.

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 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-NYSE-2007-46 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-NYSE-2007-46. 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-NYSE-2007-46 and should be 
submitted on or before July 23, 2007.

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

    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.\29\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\30\ which 
requires that the rules of an exchange be designed, among other things, 
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. Although Section 703.16 of the NYSE Listed Company 
Manual permits the Exchange to either originally list and trade 
Investment Company Units or trade Investment Company Units pursuant to 
unlisted trading privileges, the Shares do not meet the ``generic'' 
listing requirements of Section 703.16 of the NYSE Listed Company 
Manual (permitting listing in reliance upon Rule 19b-4(e) \31\ under 
the Act) because the components of the Index underlying the Fund do not 
meet the initial listing requirements of Section 703.16(C)(2)(b)(ii) of 
the Listed Company Manual. Section 703.16(C)(2)(b)(ii) of the NYSE 
Listed Company Manual requires that, upon the initial listing of any 
series of Investment Company Units, the component stocks that in the 
aggregate account for at least 90% of the weight of the index or 
portfolio each must have minimum worldwide trading volume during each 
of the last six months of at least 250,000 shares. The Exchange 
represents that Index component stocks each having a worldwide monthly 
trading volume of at least 250,000 shares in the aggregate account for 
approximately 86.2% of the weight of the Index in the aggregate during 
each month from November 2006 through April 2007. Because such 
percentage misses the minimum required threshold by approximately 3.8%, 
the Shares cannot be listed and traded pursuant to Section 703.16 of 
the NYSE Listed Company Manual. The Commission believes, however, that 
the listing and trading of the Shares would be consistent with the Act. 
The Commission notes that it has previously approved exchange rules 
that contemplate the listing and trading of derivative securities 
products based on indices that were composed of stocks that did not 
meet certain quantitative generic listing criteria by only a slight 
margin.\32\ The Commission also notes that the Fund is substantially 
similar in structure and operation to other HealthSharesTM 
exchange-traded funds, the shares of which are currently listed and 
trading on the Exchange.\33\
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    \29\ In approving this rule change, the Commission notes that it 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \30\ 15 U.S.C. 78f(b)(5).
    \31\ 17 CFR 240.19b-4(e).
    \32\ See Securities Exchange Act Release Nos. 55699 (May 3, 
2007), 72 FR 26435 (May 9, 2007) (SR-NYSEArca-2007-27) (approving 
the listing and trading of shares of the iShares FTSE NAREIT 
Residential Index Fund where the weighting of the five highest 
components of the underlying index was marginally higher than that 
allowed by NYSE Arca, Inc.'s relevant generic listing standards); 
and 52826 (November 22, 2005), 70 FR 71874 (November 30, 2005) (SR-
NYSEArca-2005-67) (approving the listing and trading of shares of 
the iShares Dow Jones U.S. Energy Sector Index Fund and the iShares 
Dow Jones U.S. Telecommunications Sector Index Fund where the 
weightings of the most heavily weighted component stock and the five 
highest components of the underlying indexes, respectively, were 
higher than that required by NYSE Arca, Inc.'s relevant generic 
listing standards). See also Securities Exchange Act Release No. 
46306 (August 2, 2002), 67 FR 51916 (August 9, 2002) (SR-NYSE-2002-
28) (approving the trading pursuant to unlisted trading privileges 
of shares of Vanguard Total Stock Market VIPERs, iShares Russell 
2000 Index Funds, iShares Russell 2000 Value Index Funds, and 
iShares Russell 2000 Growth Funds, none of which met the trading 
volume requirement of the relevant generic listing criteria for 
NYSE).
    \33\ Telephone conversation between Michael Cavalier, Assistant 
General Counsel, NYSE, and Edward Cho, Special Counsel, Division, 
Commission, on June 4, 2007 (confirming that the shares of other 
HealthSharesTM exchange-traded funds were listed pursuant 
to Rule 19b-4(e) under the Act because they met the ``generic'' 
listing standards under Section 703.16 of the NYSE Listed Company 
Manual). See 17 CFR 240.19b-4(e).

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[[Page 36090]]

    The Commission further believes that the proposal is consistent 
with Section 11A(a)(1)(C)(iii) of the Act,\34\ which sets forth 
Congress' finding that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities. The Exchange, through the facilities of the Consolidated 
Tape Association or a major market data vendor, will disseminate the 
IIV at least every 15 seconds during Exchange trading hours. In 
addition, one or more major market data vendors will calculate and 
disseminate an updated, intra-day value of the Underlying Index on a 
real-time basis during Exchange trading hours and the closing value of 
such Underlying Index once each trading day. BNY Asset Management will 
calculate and disseminate once each trading day the NAV to all market 
participants at the same time. The Corporation's Web site at http://www.healthsharesinc.com
 will include information pertaining to the 

Index and its component securities, the Index Methodology, the NAV and 
the prior day's NAV, the Bid-Ask Price and related information, the 
Prospectus and Statement of Additional Information, and other relevant 
trading information. The Advisor will make available on each business 
day, prior to the opening of trading on the Exchange, the Creation List 
and Redemption List. Moreover, the closing prices of the Fund's Deposit 
Securities are readily available from the relevant exchange, automated 
quotation systems, and major market data vendors. Information regarding 
the market, closing prices, and trading volume of the Shares will be 
publicly available on a real-time basis throughout the trading day and 
in the daily publications of financial news services. In sum, the 
Commission believes that the proposal is reasonably designed to 
facilitate access to information that could assist investors in 
properly valuing the Shares.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    The Commission finds that the Exchange's proposed rules and 
procedures for trading of the Shares are consistent with the Act. The 
Shares will trade as equity securities, thus rendering trading in the 
Shares subject to the Exchange's existing rules governing the trading 
of equity securities.
    In support of this proposal, the Exchange has made the following 
representations:
    (1) The Exchange would utilize its existing surveillance procedures 
applicable to equity securities to monitor trading of the Shares of the 
Fund. Surveillance procedures applicable to trading of the Shares are 
comparable to those applicable to other Investment Company Units 
currently trading on the Exchange. The Exchange represents that such 
surveillance procedures are adequate to properly monitor the trading of 
the Fund Shares. The Exchange's current trading surveillance focuses on 
detecting securities trading outside their normal patterns. When such 
situations are detected, surveillance analysis follows, and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations. The Exchange 
may also obtain trading information via the ISG from other exchanges 
who are members or affiliate members of ISG.
    (2) The Index Administrator is neither a registered broker-dealer 
nor an ``affiliated person,'' as defined in Section 2(a)(3) of the 1940 
Act, or an affiliated person of an affiliated person of the Fund, 
Advisor, Sub-Advisor, Distributor, or the Corporation.
    (3) In order to halt the trading of the Shares, the Exchange may 
consider, among other things, factors such as the extent to which 
trading is not occurring in an underlying security and whether other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair and orderly market are present. In addition, trading in the Fund's 
shares is subject to trading halts caused by extraordinary market 
volatility pursuant to NYSE Rule 80B. The Exchange also may halt 
trading in the Fund if the Index Value or IIV applicable to the Fund is 
no longer calculated or disseminated, as provided by NYSE Rule 
1100(f)(1).\35\
---------------------------------------------------------------------------

    \35\ See supra note 26.
---------------------------------------------------------------------------

    (4) The Exchange will distribute a Memo to its members in 
connection with the trading of the Shares of the Fund. The Memo will 
discuss the special characteristics and risks of trading this type of 
security. In addition, the Memo, among other things, will discuss what 
the Fund is, how the Fund's shares are created and redeemed, the 
requirement that members and member firms deliver a prospectus or 
product description to investors purchasing shares of the Fund prior to 
or concurrently with the confirmation of a transaction,\36\ the 
applicable Exchange rules, dissemination information, trading 
information, and the applicable suitability rules. The Memo will also 
discuss exemptive, no-action, and interpretive relief granted by the 
Commission from Section 11(d)(1) and certain other rules under the Act, 
if applicable.
---------------------------------------------------------------------------

    \36\ See supra note 24.
---------------------------------------------------------------------------

    This order is conditioned on the Exchange's adherence to the 
foregoing representations.
    The Commission finds good cause for approving this proposal before 
the thirtieth day after the publication of notice thereof in the 
Federal Register. As referenced above, the Commission notes that the 
Fund is substantially similar in structure, operation, and function to 
other HealthSharesTM exchange-traded funds, the shares of 
which are currently listed and trading on the Exchange pursuant to Rule 
19b-4(e) under the Act.\37\ In addition, the Commission notes that it 
has previously approved exchange rules that contemplate the listing and 
trading of derivative securities products based on indices that were 
composed of stocks that did not meet certain quantitative generic 
listing criteria by similar amounts.\38\ Although the Fund Shares do 
not meet the initial listing requirement of Section 703.16(C)(2)(b)(ii) 
of the NYSE Listed Company Manual \39\ and therefore cannot be listed 
pursuant to Rule 19b-4(e), the Commission believes that the Shares are 
substantially similar to the other HealthSharesTM trading on 
the Exchange and notes that the Shares will otherwise comply with all 
other ``generic'' listing requirements under Section 703.16.\40\ The 
listing and trading of the Shares do not appear to present any new or 
significant regulatory concerns. Therefore, the Commission believes 
that accelerating approval of this proposal would allow the Shares to 
trade on the Exchange without undue delay and should generate 
additional competition in the market for such products.
---------------------------------------------------------------------------

    \37\ See supra note 33.
    \38\ See supra note 32.
    \39\ See supra note 8.
    \40\ See id.
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\41\ that the proposed rule change (SR-NYSE-2007-46), as modified 
by Amendment No. 1, be, and it hereby is, approved on an accelerated 
basis.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78s(b)(2).

[[Page 36091]]

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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-12676 Filed 6-29-07; 8:45 am]

BILLING CODE 8010-01-P