Document ID: SEC-2007-1402-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations: NYSE Arca, Inc.
Posted Date: 2007-10-09T04:00Z

[Federal Register: October 9, 2007 (Volume 72, Number 194)]
[Notices]               
[Page 57362-57364]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09oc07-118]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56593; File No. SR-NYSEArca-2007-96]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Order Granting Accelerated Approval of Proposed Rule Change, as 
Modified by Amendment No. 1 Thereto, To Amend the Initial Listing 
Standards for Index-Linked Securities

October 1, 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 September 17, 2007, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange''), 
through its wholly owned subsidiary, NYSE Arca Equities, Inc. (``NYSE 
Arca Equities''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which items have been substantially prepared by the Exchange. 
On September 27, 2007, the Exchange filed Amendment No. 1 to the 
proposed rule change. This order provides notice of and approves the 
proposed rule change, as modified by Amendment No. 1 thereto, 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 NYSE Arca Equities Rule 5.2(j)(6)(a) 
to (i) permit the listing of Index-Linked Securities \3\ that do not 
meet the one million publicly held trading units and/or the 400 minimum 
number of public holders initial distribution requirements, subject to 
certain conditions, (ii) decrease the minimum principal amount/market 
value of $20 million to $4 million for an initial listing of Index-
Linked Securities, and (iii) make a non-substantive clarification to 
the cross-reference to ``General Criteria.'' The text of the proposed 
rule change is available at the Exchange, the Commission's Public 
Reference Room, and http://www.nyse.com.

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    \3\ Index-Linked Securities are defined as securities that 
provide for the payment at maturity of a cash amount based on the 
performance of an underlying index or indexes. See NYSE Arca 
Equities Rule 5.2(j)(6).
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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 III below. The Exchange 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
    The Exchange proposes to amend NYSE Arca Equities Rule 5.2(j)(6)(a) 
to permit the listing of Index-Linked Securities that do not meet the 
one million publicly held trading units and/or the 400 minimum number 
of public holders initial distribution requirements, subject to certain 
conditions. The Commission has approved a similar proposal filed by the 
New York Stock Exchange LLC (``NYSE'').\4\
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    \4\ See Securities Exchange Act Release No. 56271 (August 16, 
2007), 72 FR 47107 (August 22, 2007) (SR-NYSE-2007-74).
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    NYSE Arca Equities Rule 5.2(j)(6)(a) generally requires that each 
issue of Index-Linked Securities have at least one million publicly 
held trading units and that there be at least 400 public beneficial 
holders of such securities, provided that, if the issue of Index-Linked 
Securities is traded in thousand dollar denominations, the 400 minimum 
public beneficial holders initial distribution requirement would not 
apply. The Exchange proposes to add an additional exemption from the 
general requirements of NYSE Arca Equities Rule 5.2(j)(6)(a) such that, 
if an issue of Index-Linked Securities are redeemable at the option of 
the holders thereof on at least a weekly basis, both the minimum one 
million publicly held trading units and 400 beneficial holders initial 
distribution requirements would not apply.
    The Exchange believes that, where there is such a weekly redemption 
right, the same justification exists for an exemption from the 
requirement to have one million units issued at the time of listing and 
the minimum 400 public

[[Page 57363]]

beneficial holders requirement. The Exchange believes that a weekly 
redemption right should ensure a strong correlation between the market 
price of the Index-Linked Securities and the performance of the 
underlying index or asset, as the case may be, as holders would be 
unlikely to sell their securities for less than their redemption value 
if they have a weekly right to be redeemed for their full value. In 
addition, in the case of those Index-Linked Securities with a weekly 
redemption feature that are currently listed, as well as all of those 
that are currently proposed to be listed, the issuer has the ability to 
issue new Index-Linked Securities from time to time at the indicative 
value at the time of such sale. This provides a ready supply of new 
Index-Linked Securities, thereby lessening the possibility that the 
market price of such securities would be affected by a scarcity of 
available Index-Linked Securities for sale. The Exchange believes that 
it also assists in maintaining a strong correlation between the market 
price and the indicative value, as investors would be unlikely to pay 
more than the indicative value in the open market if they can acquire 
Index-Linked Securities from the issuer at that price.
    The Exchange states that the ability to list Index-Linked 
Securities with these characteristics without any minimum number of 
units issued or holders is important to the successful listing of such 
securities. Issuers distributing these types of Index-Linked Securities 
generally do not intend to do so by way of an underwritten offering. 
Rather, the distribution arrangement is analogous to that of an 
exchange-traded fund issuance, in that the issue is launched without 
any significant distribution event, and the float increases over time 
as investors purchase additional securities from the issuer at the then 
indicative value. Investors would generally seek to purchase the 
securities at a point when the underlying index or asset is at a level 
that they perceive would provide an attractive growth opportunity. In 
the context of such a distribution arrangement, it is difficult for an 
issuer to guarantee its ability to sell a specific number of units on 
the listing date. However, the Exchange believes that this difficulty 
in ensuring the sale of one million units on the listing date is not 
indicative of a likely long-term lack of liquidity in the securities 
or, for the reasons set forth above, of a difficulty in establishing a 
pricing equilibrium in the securities or a successful two-sided market.
    With respect to each issue of Index-Linked Securities, NYSE Arca 
Equities Rule 5.2(j)(1) generally requires a minimum principal amount/
market value of $20 million. The Exchange proposes to amend NYSE Arca 
Equities Rule 5.2(j)(6)(a) to decrease the minimum principal amount/
market value from $20 million to $4 million. The Exchange seeks to 
conform this minimum principal amount/market value requirement to 
similar initial listing requirements for Index-Linked Securities of 
other national securities exchanges.\5\
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    \5\ See, e.g., Section 703.22(B)(3) of the NYSE Listed Company 
Manual; Section 107(A)(c) of the American Stock Exchange LLC Company 
Guide; and Rule 4420(f)(1)(D) of The NASDAQ Stock Market LLC.
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    Finally, the Exchange proposes to make a non-substantive 
clarification to NYSE Arca Equities Rule 5.2(j)(6)(a) to replace the 
internal cross-reference to ``General Criteria'' with the reference to 
NYSE Arca Equities Rule 5.2(j)(1), which sets forth the general initial 
listing requirements for ``Other Securities,'' such as Index-Linked 
Securities.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\6\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\7\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments on the proposed rule change were neither solicited 
nor 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 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 e-mail to rule-comments@sec.gov. Please include File 

Number SR-NYSEArca-2007-96 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-NYSEArca-2007-96. 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 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-2007-96 and should 
be submitted on or before October 30, 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

[[Page 57364]]

a national securities exchange \8\ and, in particular, the requirements 
of Section 6 of the Act.\9\ Specifically, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\10\ 
which requires, among other things, that the rules of a national 
securities exchange be 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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    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposal should benefit investors 
by providing an exception to the minimum public distribution 
requirements for Index-Linked Securities with a weekly redemption 
right. The Commission believes that the market price of Index-Linked 
Securities with a weekly redemption right should exhibit a strong 
correlation to the performance of the relevant underlying index or 
asset, since holders of such securities would be unlikely to sell them 
for less than their redemption value if they have a weekly right to be 
redeemed for their full value. The Commission believes that this 
exception is reasonable and should allow for the listing and trading of 
certain Index-Linked Securities that would otherwise not be able to be 
listed and traded on the Exchange.
    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day after the date of publication of the 
notice of filing thereof in the Federal Register The Commission notes 
that it has approved a similar proposal filed by NYSE \11\ and similar 
initial distribution requirements for Index-Linked Securities of other 
national securities exchanges \12\ and does not believe that this 
proposal raises any novel regulatory issues. Accelerating approval of 
this proposal should benefit investors by creating, without undue 
delay, additional competition in the market for Index-Linked 
Securities. Therefore, the Commission finds good cause, consistent with 
Section 19(b)(2) of the Act,\13\ to approve the proposed rule change on 
an accelerated basis.
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    \11\ See supra note 4.
    \12\ See supra note 5.
    \13\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NYSEArca-2007-96) be, and it 
hereby is, approved on an accelerated basis.
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    \14\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
Nancy M. Morris,
Secretary.
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    \15\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E7-19764 Filed 10-5-07; 8:45 am]

BILLING CODE 8011-01-P