Document ID: SEC-2006-0743-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2006-06-08T04:00Z

[Federal Register: June 8, 2006 (Volume 71, Number 110)]
[Notices]               
[Page 33326-33328]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08jn06-94]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53934; File No. SR-NYSE-2006-39]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change Relating to Increasing the Maximum Weighting of Certain 
Component Stocks in Indexes or Portfolios Underlying Investment Company 
Units

June 1, 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 17, 2006, 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 by the NYSE. 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 proposes to amend section 703.16(B)(2)(c) \3\ of the 
NYSE Listed Company Manual (``Manual'') 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.
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    \3\ The Commission corrected the reference to the relevant 
NYSE's Manual citation provided in the Form 19b-4 filed with the 
Commission in connection with the instant proposed rule change. 
Telephone conversation between Michael Cavalier, Assistant General 
Counsel, NYSE and Tim Fox, Special Counsel, Commission on May 23, 
2006.
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    The text of the proposed rule change is available on the NYSE's Web 
site (http://www.nyse.com), at the NYSE'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 NYSE 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. The NYSE 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
    Section 703.16 of the Manual provides listing standards for 
Investment Company Units (``ICUs'') to permit listing and trading of 
these securities pursuant to Rule 19b-4(e) under the Exchange Act.\4\ 
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,\5\ if the Commission has approved, pursuant to 
section 19(b) of the Exchange Act,\6\ 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.\7\ These standards are 
frequently referred to as ``generic'' listing standards.
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    \4\ 17 CFR 240.19b-4(e).
    \5\ 17 CFR 240.19b-4(c)(1).
    \6\ 15 U.S.C. 78s(b).
    \7\ 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 1996, the Commission approved Section 703.16 of the Manual, 
which sets forth the rules related to the listing of ICUs.\8\ In 2000, 
the Commission also approved the Exchange's generic listing standards 
for listing and trading, or the trading pursuant to unlisted trading

[[Page 33327]]

privileges, of ICUs under Section 703.16 of the Manual and Exchange 
Rule 1100.\9\
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    \8\ See Securities Exchange Act Release No. 36923 (March 5, 
1996), 61 FR 10410 (March 13, 1996) (SR-NYSE-95-23).
    \9\ See Securities Exchange Act Release No. 43679 (December 5, 
2000), 65 FR 77949 (December 13, 2000) (SR-NYSE-00-46).
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    Section 703.16(B)(2) of the Manual 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 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 component stocks are 
generally actively traded and with substantial market capitalization.
    Currently, Section 703.16(B)(2)(c) of the Manual provides that the 
most heavily weighted component stock in an underlying index 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. 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. 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.
    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.\10\
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    \10\ According to the NYSE, 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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2. Statutory Basis
    The Exchange believes that the proposal is consistent with section 
6(b) of the Exchange Act,\11\ in general, and furthers the objectives 
of section 6(b)(5) of the Exchange Act,\12\ in particular, in that the 
proposal is designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 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 either solicited or 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 rule-comments@sec.gov. Please include 

File Number SR-NYSE-2006-39 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2006-39. 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 also will be available for inspection and copying at the 
principal office of the NYSE. 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-2006-39 and should be submitted on or before June 
29, 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.\13\ In particular, the Commission believes that the proposal 
is consistent with section 6(b)(5) of the Exchange Act,\14\ 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 protect investors and the public interest. The 
Commission believes that the proposed rule change 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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    \13\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
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    Under section 19(b)(2) of the Exchange Act,\15\ the Commission may 
not approve any proposed rule change prior to the thirtieth day after 
the date of publication of the notice of filing thereof, unless the 
Commission finds good cause for so doing. The

[[Page 33328]]

Commission hereby finds good cause for approving the proposed rule 
change prior to the thirtieth day after publishing notice of filing 
thereof in the Federal Register. The Commission notes that it has 
previously approved similar proposals by the American Stock Exchange 
(``Amex'') and Chicago Board Options Exchange (``CBOE'') to increase to 
thirty percent the permissible weight of the most heavily weighted 
component stock in an underlying index.\16\
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    \15\ 15 U.S.C. 78s(b)(2).
    \16\ 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).
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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-NYSE-2006-39) is hereby 
approved on an accelerated basis.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-8875 Filed 6-7-06; 8:45 am]

BILLING CODE 8010-01-P