Document ID: SEC-2012-0779-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2012-05-17T04:00Z

[Federal Register Volume 77, Number 96 (Thursday, May 17, 2012)]
[Notices]
[Pages 29416-29419]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-11913]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66965; File No. SR-NYSEARCA-2012-38]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend NYSE Arca 
Equities Rule 5.2(j)(1), the Exchange's ``Other Securities'' Listing 
Standard, To Delete a Provision Providing That If a Security Listed 
Under the Rule Contains Redemption Provisions, the Redemption Price 
Must Be at Least $3.00 Per Unit

May 11, 2012.
    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 April 30, 2012, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') 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 self-regulatory 
organization. The Commission is publishing this notice to

[[Page 29417]]

solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C.78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Equities Rule 5.2(j)(1), 
the Exchange's ``Other Securities'' listing standard, to delete a 
provision providing that if a security listed under the rule contains 
redemption provisions the redemption price must be at least $3.00 per 
unit. The text of the proposed rule change is available at the 
Exchange, the Commission's Public Reference Room, and www.nyse.com.

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend NYSE Arca Equities Rule 5.2(j)(1), 
the Exchange's initial listing standard for ``Other Securities,'' \3\ 
as set forth below. Under NYSE Arca Equities Rule 5.2(j)(1), the 
Exchange may approve for listing and trading securities which cannot be 
readily categorized under the listing criteria for common and preferred 
stocks, bonds, debentures, warrants, contingent value rights, and unit 
investment trusts.\4\ The Exchange, like certain other national 
securities exchanges, refers to such securities as ``Other 
Securities.'' \5\ In addition, NYSE Arca Equities Rule 5.2(j)(4) 
(``Index-linked Exchangeable Notes'') and NYSE Arca Equities Rule 
5.2(j)(6) (``Equity Index-Linked Securities, Commodity-Linked 
Securities, Currency-Linked Securities, Fixed Income Index-Linked 
Securities, Futures-Linked Securities and Multifactor Index-Linked 
Securities'') (securities listed under any of these rules and 
securities listed under NYSE Arca Equities Rule 5.2(j)(1) shall be 
referred to herein as ``hybrid securities'') require that, in the case 
of securities listed under those rules, both the issue and the issuer 
must comply with the requirements of NYSE Arca Equities Rule 5.2(j)(1), 
except to the extent that those rules explicitly provide otherwise.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 34429 (July 22, 
1994), 59 FR 38998 (August 1, 1994) (SR-PSE-93-12) (approving, among 
other things, the initial listing standards for ``Other Securities'' 
of the Pacific Stock Exchange (``PCX''), the predecessor entity to 
NYSE Arca).
    \4\ NYSE Arca Equities Rule 5.2(j)(1) currently states that the 
Exchange will consider listing any security not otherwise covered by 
the requirements of NYSE Arca Equities Rules 5.2(c) through (h). See 
NYSE Arca Equities Rule 5.2(j)(1); see, e.g., NYSE Arca Equities 
Rules 5.2(c) (listing criteria for common stock); 5.2(d) (listing 
criteria for preferred stock and similar issues and secondary 
classes of common stock; 5.2(e) (listing criteria for bonds and 
debentures); 5.2(f) (listing criteria for warrants); 5.2(g) (listing 
criteria for contingent value rights); and 5.2(h) (listing criteria 
for unit investment trusts).
    \5\ NYSE Amex's initial listing standards for ``Other 
Securities'' are set forth in Section 107A of the NYSE Amex Company 
Guide. See Securities Exchange Act Release No. 27753 (March 1, 
1990), 55 FR 8626 (March 8, 1990) (SR-Amex-89-29) (approving the 
initial listing criteria for ``Other Securities'').
---------------------------------------------------------------------------

    The Exchange amended its initial and continued listing standards 
for operating companies on a pilot program basis in 2006 (the ``Pilot 
Program'') and subsequently extended that Pilot Program three times.\6\ 
The Pilot Program also made minor changes to a number of other rules, 
including NYSE Arca Equities Rule 5.2(j)(1), which was amended to (i) 
add a pre-tax income initial listing requirement of $1,000,000 and (ii) 
to make some minor non-substantive stylistic changes. The Exchange 
amended rules included in the Pilot Program on several occasions while 
the Pilot Program was operational, including by means of a rule filing 
approved by the SEC in which the Exchange deleted NYSE Arca Equities 
Rule 5.2(j)(1)(E), which provided that the redemption price must be at 
least $3.00 per unit for those issues that contain redemption 
provisions.\7\
---------------------------------------------------------------------------

    \6\ The Commission initially approved the Pilot Program for six 
months, until May 29, 2007. See Securities Exchange Act Release No. 
54796 (November 20, 2006), 71 FR 69166 (November 29, 2006) (SR-
NYSEArca-2006-85). The Pilot was subsequently extended for an 
additional six months, until November 30, 2007. See Securities 
Exchange Act Release No. 55838 (May 31, 2007), 72 FR 31642 (June 7, 
2007) (SR-NYSEArca-2007-51). The Pilot was then extended for an 
additional six months, until May 31, 2008. See Securities Exchange 
Act Release No. 56885 (December 3, 2007), 72 FR 69272 (December 7, 
2007) (SR-NYSEArca-2007-123). The Pilot was finally extended for an 
additional six months, until November 30, 2008. See Securities 
Exchange Act Release No. 57922 (June 4, 2008), 73 FR 33137 (June 11, 
2008) (SR-NYSEArca-2008-55).
    \7\ See Securities Exchange Act Release No. 56906 (December 5, 
2007), 72 FR 70636 (December 12, 2007) (SR-NYSEArca-2007-103).
---------------------------------------------------------------------------

    The third and final extension of the Pilot Program expired on 
November 30, 2008. After the final extension of the Pilot Program in 
2008, NYSE Euronext, the ultimate parent company of NYSE Arca decided 
to discontinue initial listing of equity securities of operating 
companies on NYSE Arca. The listing standards adopted under the Pilot 
Program, as amended, were not adopted on a permanent basis prior to the 
expiration of the Pilot Program because of that decision.
    The Exchange now proposes to amend its rules to delete NYSE Arca 
Equities Rule 5.2(j)(1)(E), which provides that the redemption price 
must be at least $3.00 per unit for those issues that contain 
redemption provisions. The Exchange proposes to delete this provision 
in order to bring the NYSE Arca Equities rule in line with those of 
other exchanges and, therefore, to remain competitive in the 
marketplace.\8\ The Exchange notes that, while it does not at this time 
list any securities under NYSE Arca Equities Rule 5.2(j)(1), NYSE Arca 
Rule 5.2(j)(4) and NYSE Arca Equities Rule 5.2(j)(6) both incorporate 
certain requirements from NYSE Arca Equities Rule 5.2(j)(1), including 
those the Exchange proposes to delete pursuant to this filing. As the 
Exchange continues to regularly list securities under NYSE Arca 
Equities 5.2(j)(6), the proposed amendment has significant implications 
for the Exchange's competitive position.
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 37165 (May 3, 1996), 
61 FR 21215 (May 9, 1996) (SR-Amex-96-15) (eliminating the U.S. 
dollar cash settlement and minimum redemption price requirements for 
``Hybrid Securities'' in Section 107A of the NYSE Amex Company 
Guide).
---------------------------------------------------------------------------

    When the Exchange first adopted its ``Other Securities'' listing 
standard in 1994, it adopted a standard that was the same in all 
material respects as the standard adopted by the American Stock 
Exchange (``Amex'') (predecessor to NYSE Amex) in 1990. At the time 
that the Amex adopted its ``Other Securities'' standard, the market for 
exchange-traded hybrid securities was in its infancy. The Exchange 
understands that there was a concern that investors did not have a 
sophisticated enough understanding of how hybrid securities performed 
and it was believed that it was therefore necessary to protect 
investors against the possibility that they could lose most or all of 
their investment in a hybrid security. Consequently, the Amex (and,

[[Page 29418]]

following the Amex's lead, the PCX) adopted a requirement that the 
issuer of a mandatorily redeemable security could not redeem such 
security at a price of less than $3.00. This provision provided 
downside protection to investors and ensured that they would not 
unknowingly purchase a security that would ultimately have little or no 
intrinsic value. The NYSE never adopted such a requirement and the Amex 
deleted this provision from its own rule in 1996 to conform to the 
``Other Securities'' rule of the NYSE.
    The Exchange believes that a minimum redemption price requirement 
may provide a desirable protection for investors in the case of certain 
hybrid securities. In that regard, the Exchange notes that after 
adoption of the proposed amendment issuers would still have the ability 
to include a minimum redemption price provision in their securities 
when doing so is desirable. However, the Exchange notes that requiring 
a minimum redemption price of $3.00 deprives investors of the ability 
to make the sort of investment choices that an investor can make when 
an equity security declines in value, as it essentially forces the 
issuer to redeem the securities as soon as possible after they fall 
below that price, as the issuer would otherwise be at risk of having to 
redeem the securities at a premium. In the absence of this automatic 
redemption, investors would have greater flexibility in that they would 
be able to choose either to continue to hold a security whose value had 
significantly declined (on the basis that its value might recover) or 
sell the security to avoid further losses. By contrast, the current 
requirement would force investors to realize the loss associated with 
the difference between their purchase price and the $3.00 redemption 
price. The Exchange also notes that exchange-traded hybrid securities 
now typically provide for the possibility of redemption of large blocks 
of the securities at the option of the investor at regular intervals. 
As such, an investor who owns a significant amount of the securities 
and who is concerned about the trend in the value of the reference 
asset for a hybrid security and its implications for the future value 
of the hybrid security itself is able to require the issuer to redeem 
his securities, thereby limiting his exposure to future declines in the 
value of the hybrid security. Finally, the Exchange notes that the 
``Other Securities'' standards of other national securities exchanges, 
including the NYSE, NYSE Amex and Nasdaq, do not include mandatory 
redemption provisions.
2. Statutory Basis
    NYSE Arca believes that the proposed rule change is consistent with 
Section 6(b) \9\ of the Securities Exchange Act of 1934 (the 
``Act''),\10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\11\ in particular in that it 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. Specifically, the proposed 
amendment is consistent with the protection of investors and the public 
interest because (i) if the automatic redemption requirement was no 
longer applicable, investors would have greater flexibility in that 
they would be able to choose either to continue to hold a security 
whose value had significantly declined (on the basis that its value 
might recover) or sell the security to limit their losses and (ii) 
issuers will still have the ability to include a minimum redemption 
price provision in their securities when doing so is desirable. In 
addition, the proposed amendment is designed to remove an impediment to 
a free and open market in that it would remove a requirement which is 
not included in the comparable rules of competitor exchanges and would 
therefore promote competition.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78a.
    \11\ 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 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

    Because the proposed rule change does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4 thereunder.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4. In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing. At any 
time within 60 days of the filing of the proposed rule change, the 
Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.\14\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

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 email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2012-38 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2012-38. This 
file number should be included on the subject line if email 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

[[Page 29419]]

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 Web site viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE., Washington, DC 20549, on official 
business days between the hours of 10:00 a.m. and 3:00 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 available publicly. All submissions should refer to 
File Number SR-NYSEArca-2012-38 and should be submitted on or before 
June 7, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-11913 Filed 5-16-12; 8:45 am]
BILLING CODE 8011-01-P