Document ID: SEC-2008-1621-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations: NYSE Arca, Inc.
Posted Date: 2008-12-01T05:00Z

[Federal Register: December 1, 2008 (Volume 73, Number 231)]
[Notices]               
[Page 72882-72883]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01de08-134]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59004; File No. SR-NYSEArca-2008-108]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change Revising NYSE Arca Rule 5.3 To Enable 
the Listing and Trading of Options on Managed Fund Shares

November 24, 2008.
    On October 9, 2008, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 \2\ thereunder to 
amend NYSE Arca Rule to list and trade options on Managed Fund Shares. 
The proposed rule change was published for comment in the Federal 
Register on October 24, 2008 for a 21-day comment period.\3\ The 
Commission received no comment letters regarding the proposal. 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\ See Securities Exchange Act Release No. 58799 (October 16, 
2008), 73 FR 63534.
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    Managed Fund Shares represent an interest in a registered 
investment company (``Investment Company'') organized as an open-end 
management investment company or similar entity. Unlike traditional 
exchange traded funds Managed Fund Shares are actively managed. Managed 
Fund Shares, although based upon a publicly disclosed portfolio of 
securities, each trade as a single exchange-listed equity security. 
Accordingly, rules pertaining to the listing and trading of standard 
equity options would apply to Managed Fund Shares.
    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 \4\ and, in particular, the requirements of Section 6 of the 
Act.\5\ Specifically, the Commission finds that the proposed rule 
change is consistent with Section 6(b)(5) of the Act,\6\ which 
requires, among other things, that the rules of a national securities 
exchange be designed 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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    \4\ 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).
    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(5).
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Listing and Trading of Options on Managed Fund Shares

    As set out more fully in the Exchange's notice of its proposal, 
NYSE Arca's proposed rules include requirements regarding initial and 
continued listing standards, the creation/redemption process for 
Managed Fund Shares, and trading halts. Managed Fund Shares must be 
traded through a national securities exchange or through the facilities 
of a national securities association, and must be ``NMS stock'' as 
defined under Rule 600 of Regulation NMS.\7\
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    \7\ 17 CFR 242.600(b)(47).
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    The Commission notes that, pursuant to NYSE Arca Rules 5.3(g)(1) 
and 5.4(k), Managed Fund Shares will be subject to the initial and 
continuing eligibility standards for underlying securities provided in 
NYSE Arca Rules 5.3 and 5.4, as applicable. In particular, to be 
options eligible, a Managed Fund Share must either meet the criteria 
and guidelines for underlying securities set forth in NYSE Arca Rule 
5.3(a) and (b), or alternately, the Managed Fund Share must be must be 
available for creation or redemption each business day in cash or in 
kind from or through the issuing trust, investment company, commodity 
pool or other issuer at a price related to the net asset value. In 
addition, the issuing trust, investment company, commodity pool, or 
other issuer is obligated to issue Managed Fund Shares in a specified 
aggregate number even though some or all of the investment assets 
needed to be deposited have not been received by the issuing trust, 
investment company, commodity pool,

[[Page 72883]]

or other issuer, provided the authorized creation participant has 
undertaken to deliver the investment assets as soon as possible and 
such undertaking has been secured by the delivery and maintenance of 
collateral consisting of cash or cash equivalents satisfactory to the 
issuer of the Managed Fund Shares which underlie the option as 
described in the Managed Fund Shares' prospectus.
    To continue to be eligible to underlie options, the Managed Fund 
Share must remain an NMS stock listed on a national securities 
exchange. The Exchange will also consider the suspension of opening 
transactions in any series of options of the class covering Managed 
Fund Shares where the Managed Fund Share does not satisfy the 
requirements set out in NYSE Arca Rule 5.4(k). These include: (1) 
Continued compliance with paragraphs 1 through 4 of NYSE Arca Rule 
5.4(b) in the case of options on Managed Fund Shares approved pursuant 
to Rule 5.3(g)(1)(A); (2) in the case of options on Managed Fund Shares 
approved pursuant to Rule 5.3(g)(1)(B), following the initial twelve-
month period, beginning upon the commencement of trading of the Managed 
Fund Shares on a national securities exchange and being defined as an 
``NMS stock'', there are fewer than 50 record and/or beneficial holders 
of such Managed Fund Shares for 30 or more consecutive trading days; 
(3) the value of the index or portfolio of securities, non-U.S. 
currency, or portfolio of commodities including commodity futures 
contracts, options on commodity futures contracts, swaps, forward 
contracts, options on physical commodities and/or Financial Instruments 
and Money Market Instruments on which the Managed Fund Shares are based 
is no longer calculated or available. In addition, the Exchange retains 
discretion to suspend opening transactions in options on Managed Fund 
Shares where conditions make further dealings in such options 
inadvisable.
    Furthermore, the Exchange represented that options on Managed Fund 
Shares will be subject to all Exchange rules governing the trading of 
equity options and that the rules pertaining to position and exercise 
limits \8\ or margin \9\ shall apply as well.
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    \8\ Pursuant to NYSE Arca Rule 6.8, Commentary .05 and .06, 
Managed Fund Shares are subject to the same position limits 
applicable to options on stocks and Exchange-Traded Fund Shares. 
NYSE Arca Rule 6.9 stipulates that exercise limits for options on 
stocks and other securities, including Managed Fund Shares, shall be 
the same as the position limits applicable under NYSE Arca Rule 6.8.
    \9\ See NYSE Arca Rules 4.15(a)-4.16(d), the Exchange's rules 
governing margin.
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Surveillance

    The Commission notes that the Exchange has represented that it will 
utilize its existing surveillance procedures applicable to options on 
exchange traded funds, which would include Managed Fund Shares, to 
monitor trading. In addition, the Exchange would implement any new 
surveillance procedures it deems necessary to effectively monitor the 
trading of options on Managed Fund Shares, including adequate 
comprehensive surveillance sharing agreements (``CSSA'') with markets 
trading in non-U.S. components,\10\ as applicable. Also, the Exchange 
may obtain trading information via the Intermarket Surveillance Group 
(``ISG'') \11\ from other exchanges who are members or affiliates of 
the ISG. The Exchange represented that it believes that these 
procedures will be adequate to properly monitor Exchange trading of 
options on these securities and to deter and detect violations of 
Exchange rules. This order is based on these representations.
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    \10\ See NYSE Arca Rule 5.3(g)(2), the Exchange's rule governing 
the applicable CSSA requirements for options on exchange-traded 
funds.
    \11\ A complete list of the current members of the ISG, is 
available at http://www.isgportal.org.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-NYSEArca-2008-108) is hereby 
approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-28423 Filed 11-28-08; 8:45 am]

BILLING CODE 8011-01-P