Document ID: SEC-2009-0036-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2009-01-07T05:00Z

[Federal Register: January 7, 2009 (Volume 74, Number 4)]
[Notices]               
[Page 754-755]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07ja09-68]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59180; File No. SR-NYSEArca-2008-121]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving 
Proposed Rule Change Amending Rule 5.2(j)(6) To Increase the 
Permissible Aggregate Weight of Underlying Foreign Country Securities

December 30, 2008.

I. Introduction

    On October 29, 2008, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca''), through its wholly owned subsidiary, NYSE Arca Equities, Inc. 
(``NYSE Arca Equities''), 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 proposed rule change amending NYSE Arca Equities Rule 
5.2(j)(6) relating to the listing of Equity Index-Linked Securities.\3\ 
The proposed rule change was published for comment in the Federal 
Register on November 28, 2008.\4\ The Commission received no comment 
letters on the proposed rule change. This order approves the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Equity Index-Linked Securities are securities, the payment 
at maturity of which is based on the performance of an underlying 
index or indexes of equity securities (``Equity Reference Asset'').
    \4\ See Securities Exchange Act Release No. 58984 (November 20, 
2008), 73 FR 72546.
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II. Description of the Proposed Rule Change

    The Exchange's listing standards for Equity Index-Linked 
Securities, among other criteria, currently limit the permissible 
aggregate weight of underlying foreign country securities and American 
Depository Receipts (``ADRs'') that can be included in the Equity 
Reference Asset to 20% of the overall index where the primary trading 
markets of such foreign country securities or foreign country 
securities underlying such ADRs are not members of the Intermarket 
Surveillance Group (``ISG'') or parties to comprehensive surveillance 
sharing agreements (``CSSAs'') with the Exchange. The Exchange proposes 
to amend NYSE Arca Equities Rule 5.2(j)(6)(B)(I)(1)(b)(v) to increase 
the permissible aggregate weight of such underlying foreign country 
securities and ADRs up to 50% of the overall index, subject to certain 
other limitations.
    Specifically, the proposal would permit the listing and trading of 
Equity Index-Linked Securities where the underlying foreign country 
securities and/or foreign country securities underlying ADRs primarily 
trading on non-U.S. markets that are not ISG members or otherwise 
subject to a CSSA agreement with the Exchange account for up to 50% of 
the aggregate dollar weight of the index, provided that: (1) The 
securities of any one primary foreign market which is not an ISG member 
or does not have a CSSA with the Exchange (``Non-Reciprocal Foreign 
Markets'') do not represent more than 20% of the dollar weight of the 
index; and (2) the securities of any two Non-Reciprocal Foreign Markets 
do not represent more than 33% of the dollar weight of the index. The 
Exchange also seeks to make technical and non-substantive modifications 
to NYSE Arca Equities Rule 5.2(j)(6)(B)(I)(1)(b)(v).

III. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act \5\ and the rules and regulations thereunder applicable to a 
national securities exchange.\6\ In particular, the

[[Page 755]]

Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\7\ which requires that the rules of the 
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.
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    \5\ 15 U.S.C. 78f.
    \6\ 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).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposal reasonably balances the 
removal of impediments to a free and open market with the protection of 
investors and the public interest, two principles set forth in Section 
6(b)(5) of the Act. As a result of the proposal, the permissible 
percentage of underlying foreign country securities and/or foreign 
country securities underlying ADRs trading on foreign markets that are 
not ISG members or parties to a CSSA with the Exchange would be limited 
to 50% of the overall dollar weight of the index. The Commission 
believes that this portion of the proposal would permit increased 
flexibility with respect to listing and trading Equity Index-Linked 
Securities. At the same time, the proposed amendment also provides that 
the securities trading on: (1) Any one Non-Reciprocal Foreign Market 
must not constitute more than 20% of the overall dollar weight of the 
index; and (2) any two Non-Reciprocal Foreign Markets must not 
constitute more than 33% of the overall dollar weight of the index. 
These conditions establish concentration limits designed to ensure that 
a significant percentage of an underlying index is not composed of 
securities trading on any one or two Non-Reciprocal Foreign Markets. 
Additionally, in light of its proposed revision to the listing criteria 
for Equity Index-Linked Securities, the Exchange has renewed its 
representation that its surveillance procedures applicable to Equity 
Index-Linked Securities are adequate to detect and deter violations of 
its Rules and all applicable federal securities laws.\8\
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    \8\ See e-Mail from Tim Malinowski, Director, NYSE Euronext, to 
Christopher W. Chow, Special Counsel, Commission, dated December 23, 
2008. See also Securities Exchange Act Release No. 56637 (October 
10, 2007), 72 FR 58704, 58709 (October 16, 2007).
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    The Commission also believes that the technical and non-substantive 
changes to NYSE Arca Equities Rule 5.2(j)(6)(B)(I)(1)(b)(v) clarify the 
format and application of the proposed amendment related to Equity 
Index-Linked Securities.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-NYSEArca-2008-121) be, and it 
hereby is, approved.
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    \9\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E9-6 Filed 1-6-09; 8:45 am]

BILLING CODE 8011-01-P