Document ID: SEC-2008-0830-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2008-06-18T04:00Z

[Federal Register: June 18, 2008 (Volume 73, Number 118)]
[Notices]               
[Page 34815-34817]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18jn08-134]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57950; File No. SR-NYSEArca-2008-57]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Amending NYSE Arca Rule 5.3 and Rule 5.4 To 
Enable the Listing and Trading of Options on Index-Linked Securities

June 11, 2008.
    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 May 29, 2008, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been substantially prepared by the Exchange. The Commission 
is publishing this notice to solicit comments on the

[[Page 34816]]

proposed rule change from interested persons.
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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 revise NYSE Arca Rules 5.3 and 5.4 to 
enable listing and trading on the Exchange of options on Index-Linked 
Securities. The text of the proposed rule change is available at the 
Exchange, the Commission's Public Reference Room, and http://
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 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 IV 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 states that the purpose of the proposed rule change is 
to revise NYSE Arca Rules 5.3 and 5.4 to enable the listing and trading 
of options on equity index-linked securities (``Equity Index-Linked 
Securities''), commodity-linked securities (``Commodity-Linked 
Securities''), currency-linked securities (``Currency-Linked 
Securities''), fixed income index-linked securities (``Fixed Income 
Index-Linked Securities''), futures-linked securities (``Futures-Linked 
Securities''), and multifactor index-linked securities (``Multifactor 
Index-Linked Securities''), collectively known as (``Index-Linked 
Securities'') (as defined in NYSE Arca Equities Rule 5.2(j)(6)) that 
are principally traded on a national securities exchange and an ``NMS 
stock'' (as defined in Rule 600 of Regulation NMS under the Act).
    Index-Linked Securities are designed for investors who desire to 
participate in a specific market segment by providing exposure to one 
or more identifiable underlying securities, commodities, currencies, 
derivative instruments or market indexes of the foregoing (``Underlying 
Index'' or ``Underlying Indexes''). Index-Linked Securities are the 
non-convertible debt of an issuer that have a term of at least one year 
but not greater than thirty years. Despite the fact that Index-Linked 
Securities are linked to an underlying index, each trade as a single, 
exchange-listed security. Accordingly, rules pertaining to the listing 
and trading of standard equity options would apply to Index-Linked 
Securities. The Exchange does not propose any changes to rules 
pertaining to Stock Index Options.
Listing Criteria
    The Exchange will consider listing and trading options on Index-
Linked Securities provided the Index-Liked Securities meet the criteria 
for underlying securities set forth in NYSE Arca Rule 5.3(a)-(b).
    The Exchange proposes that Index-Linked Securities deemed 
appropriate for options trading represent ownership of a security that 
provides for the payment at maturity, as described below:
     Equity Index-Linked Securities are securities that provide 
for the payment at maturity of a cash amount based on the performance 
of an underlying index or indexes of equity securities (``Equity 
Reference Asset'');
     Commodity-Linked Securities are securities that provide 
for the payment at maturity of a cash amount based on the performance 
of one or more physical commodities or commodity futures, options or 
other commodity derivatives or Commodity-Based Trust Shares or a basket 
or index of any of the foregoing (``Commodity Reference Asset''); \3\
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    \3\ Telephone conversation between Glenn Gsell, Director, 
Options Regulation, Exchange, and Michou H.M. Nguyen and Brian 
Trackman, Special Counsels, Division of Trading and Markets, 
Commission, on June 10, 2008 (correcting the description of Index 
Linked Securities to conform to language in the proposed rule text 
stating that the payment at maturity is a cash amount) (``June 10 
Teleconference'').
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     Currency-Linked Securities are securities that provide for 
the payment at maturity of a cash amount based on the performance of 
one or more currencies, or options or currency futures or other 
currency derivatives or Currency Trust Shares \4\ or a basket or index 
of any of the foregoing (``Currency Reference Asset''); \5\
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    \4\ See NYSE Arca Equities Rule 8.202(c). The term ``Currency 
Trust Shares'' is defined as a security that: (a) Is issued by a 
trust (``Trust'') that holds a specified non-U.S. currency deposited 
with the Trust; (b) when aggregated in some specified minimum number 
may be surrendered to the Trust by the beneficial owner to receive 
the specified non-U.S. currency; and (c) pays beneficial owners 
interest and other distributions on the deposited non-U.S. currency, 
if any, declared and paid by the Trust.
    \5\ See June 10 Teleconference supra note 3.
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     Fixed Income Index-Linked Securities are securities that 
provide for the payment at maturity of a cash amount based on the 
performance of one or more notes, bonds, debentures or evidence of 
indebtedness that include, but are not limited to, U.S. Department of 
Treasury securities (``Treasury Securities''), government-sponsored 
entity securities (``GSE Securities''), municipal securities, trust 
preferred securities, supranational debt and debt of a foreign country 
or a subdivision thereof or a basket or index of any of the foregoing 
(``Fixed Income Reference Asset'');
     Futures-Linked Securities are securities that provide for 
the payment at maturity of a cash amount based on the performance of an 
index of (a) futures on Treasury Securities, GSE Securities, 
supranational debt and debt of a foreign country or a subdivision 
thereof, or options or other derivatives on any of the foregoing; or 
(b) interest rate futures or options or derivatives on the foregoing in 
this subparagraph (b) (``Futures Reference Asset''); and
     Multifactor Index-Linked Securities are securities that 
provide for the payment at maturity of a cash amount based on the 
performance of any combination of two or more Equity Reference Assets, 
Commodity Reference Assets, Currency Reference Assets, Fixed Income 
Reference Assets or Futures Reference Assets (``Multifactor Reference 
Asset'').
    For the purposes of NYSE Arca Rule 5.3(j), Equity Reference Assets, 
Commodity Reference Assets, Currency Reference Assets, Fixed Income 
Reference Assets, Futures Reference Assets, and Multifactor Reference 
Assets, would be collectively referred to as ``Reference Assets,'' as 
defined in NYSE Arca Equities Rule 5.2(j)(6).
    Index-Linked Securities must meet the criteria and guidelines for 
underlying securities set forth in NYSE Arca Rule 5.3(a), or the Index-
Linked Securities must be redeemable at the option of the holder at 
least on a weekly basis through the issuer at a price related to the 
applicable underlying Reference Asset. In addition, the issuing company 
is obligated to issue or repurchase the securities in aggregation units 
for cash or cash equivalents satisfactory to the issuer of Index-Linked 
Securities which underlie the option as described in the Index-Linked 
Securities prospectus.
Continued Listing Requirements
    Options on Index-Linked Securities would be subject to all Exchange 
rules governing the trading of equity options. The current continuing 
or maintenance listing standards for options traded on NYSE Arca would 
continue to apply.

[[Page 34817]]

    The Exchange proposes to establish NYSE Arca Rule 5.4(m) which 
would include criteria related to the continued listing of options on 
Index-Linked Securities.
    Under the applicable continued listing criteria in proposed NYSE 
Arca Rule 5.4(m), options on Index Linked Securities initially approved 
for trading pursuant to proposed NYSE Arca Rule 5.3(j) may be subject 
to the suspension of opening transactions as follows: (1) Non-
compliance with the terms of NYSE Arca Rule 5.3(j); (2) non-compliance 
with the terms of NYSE Arca Rule 5.4(b), except that in the case of 
options covering Index-Linked Securities approved pursuant to NYSE Arca 
Rule 5.3(j)(3)(B) that are redeemable at the option of the holder at 
least on a weekly basis, then option contracts of the class covering 
such Securities may only continue to be open for trading as long as the 
Securities are listed on a national securities exchange and are an 
``NMS stock'' as defined in Rule 600 of Regulation NMS; \6\ (3) in the 
case of any Index-Linked Security trading pursuant to NYSE Arca Rule 
5.3(j), the value of the Reference Asset is no longer calculated or 
available; or (4) such other event shall occur or condition exist that 
in the opinion of the Exchange makes further dealing in such options on 
the Exchange inadvisable.
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    \6\ See June 10 Teleconference, supra note 3 (correcting the 
description of Index Linked Securities to conform with proposed NYSE 
Arca Rule 5.4(m)(2)).
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    The Exchange represents that the listing and trading of options on 
Index-Linked Securities under proposed NYSE Arca Rule 5.3(j) will not 
have any effect on the rules pertaining to position and exercise limits 
\7\ or margin.\8\
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    \7\ See NYSE Arca Rules 6.8 and 6.9.
    \8\ See NYSE Arca Rule 5.25.
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    The Exchange states that it will implement surveillance procedures 
for options on Index-Linked Securities, including adequate 
comprehensive surveillance sharing agreements with markets trading in 
non-U.S. components, as applicable. NYSE Arca represents 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.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\10\ 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, and 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. The 
Exchange believes that the proposed rules applicable to trading 
pursuant to generic listing and trading criteria, together with the 
Exchange's surveillance procedures applicable to trading in the 
securities covered by the proposed rules, serve to foster investor 
protection.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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

    The Exchange states that written comments on the proposed rule 
change were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2008-57 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2008-57. 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 the 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-2008-57 and should 
be submitted on or before July 9, 2008. 

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-13705 Filed 6-17-08; 8:45 am]

BILLING CODE 8010-01-P