Document ID: SEC-2007-0496-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-04-03T04:00Z

[Federal Register: April 3, 2007 (Volume 72, Number 63)]
[Notices]               
[Page 15928-15929]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03ap07-100]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55545; File No. SR-NYSE-2007-12]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Accelerated Approval to a Proposed Rule Change as Modified by 
Amendment No. 1 To Amend Section 703.16 of the NYSE Listed Company 
Manual To Eliminate Requirement Regarding Index Weighting and 
Calculation Methodology

March 27, 2007.

I. Introduction

    On February 5, 2007, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') 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 amend Section 703.16 of the NYSE Listed Company Manual 
(``NYSE Manual''), the Exchange's generic listing standard for 
investment company units (``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 Section 
703.16(C)(4)(a). On February 15, 2007, the NYSE submitted Amendment No. 
1 to the proposed rule change. 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, as modified by 
Amendment No. 1, 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 Section 703.16 of the NYSE Manual 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. 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. 55343 (February 23, 
2007), 72 FR 9814.
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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. 
Section 703.16(C)(4)(a) of the NYSE Manual requires that, if a series 
of ICUs is listed for trading on the Exchange in reliance upon Rule 
19b-4(e) under the Act,\7\ the index underlying the series must follow 
a 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 Section 703.16 of the NYSE Manual.
    \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'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 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 Section 703.16(C) of the NYSE Manual 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\ Similarly, the 
generic listing standards for international or global indexes require, 
without limitation, that the most heavily weighted component stock of 
an index not exceed 25% of the weight of the index, and the five most 
heavily weighted component stocks of an index not exceed 60% of the 
weight of the index,\15\ and that an index include a minimum of 20 
component stocks.\16\ 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 $100 million and minimum monthly trading volume of at least 
250,000 shares for each of the last

[[Page 15929]]

six months.\17\ 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 Section 703.16 of the NYSE Manual.
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    \12\ See Section 703.16(C)(2)(a)(iii) of the NYSE Manual.
    \13\ See Section 703.16(C)(2)(a)(iv) of the NYSE Manual.
    \14\ See Section 703.16(C)(2)(a)(i) and (a)(ii) of the NYSE 
Manual.
    \15\ See Section 703.16(C)(2)(b)(iii) of the NYSE Manual.
    \16\ See Section 703.16(C)(2)(b)(iv) of the NYSE Manual.
    \17\ See Section 703.16(C)(2)(b)(i) and (b)(ii) of the NYSE 
Manual.
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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's proposal substantively tracks a recently 
approved rule change by the American Stock Exchange LLC \18\ and raises 
no new regulatory issues. Thus, the Commission finds good cause, 
consistent with Section 19(b)(2) of the Act,\19\ 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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    \18\ See Securities Exchange Act Release No. 55544 (March 27, 
2007). NYSE Arca, Inc. has also proposed a parallel rule change, 
which the Commission is approving concurrently with this one. See 
Securities Exchange Act Release No. 55546 (March 27, 2007).
    \19\ 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,\20\ that the proposed rule change (SR-NYSE-2007-12), as modified 
by Amendment No. 1, be, and is hereby approved on an accelerated basis.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-6084 Filed 4-2-07; 8:45 am]

BILLING CODE 8010-01-P