Document ID: SEC-2007-1314-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2007-09-25T04:00Z

[Federal Register: September 25, 2007 (Volume 72, Number 185)]
[Notices]               
[Page 54506-54508]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25se07-92]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56454; File No. SR-Phlx-2007-43]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change, as Modified by Amendment No. 1 Thereto, Relating to 
Elimination of Calculation Methodology From Generic Listing Standards

September 18, 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 June 15, 2007, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') 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 Phlx. On 
September 6, 2007, the Exchange submitted Amendment No. 1 to the 
proposed rule change. This order provides notice of the proposed rule 
change, as modified by Amendment No. 1, and approves the proposed rule 
change as amended 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

    Phlx proposes to amend its existing Rule 803 (Criteria for 
Listing--Tier I) to eliminate the requirement that indexes underlying 
certain Trust Shares and Index Fund Shares (collectively, ``ETFs'' or 
``Exchange Traded Funds'') \3\ are calculated following a specific 
methodology.
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    \3\ See definitions of Trust Shares and Index Fund Shares in 
Phlx Rules 803(i) and 803(l), respectively.
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    The text of the proposed rule change is available at Phlx, the 
Commission's Public Reference Room, and http://www.phlx.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, Phlx 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. Phlx 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 purpose of the proposed rule change is to amend Phlx Rule 803 
(Criteria for Listing--Tier I) regarding Phlx's generic listing 
standards pursuant to Rule 19b-4(e) under the Act (``Rule 19b-4(e)'') 
\4\ for ETFs to eliminate the requirement that an underlying index be 
calculated following one of five specified methodologies.
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    \4\ 17 CFR 240.19b-4(e).
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    The Exchange currently has generic listing standards which permit 
the listing and trading of various ETFs subject to the procedures 
contained in Rule 19b-4(e) (without the need to file a rule change for 
each security). By amending its generic listing standards, the Exchange 
intends to reduce the time frame for listing ETFs based on indexes that 
utilize methodologies not currently identified in the generic listing 
standards and thereby reduce the burdens on issuers and other market 
participants.
    The generic listing standards for ETFs presently provide that their 
underlying indexes be calculated based on the market capitalization, 
modified market capitalization, price, equal-dollar, or modified equal-
dollar weighting methodology.\5\ 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 ETF's eligibility for 
listing and trading pursuant to Rule 19b-4(e).
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    \5\ See Phlx Rule 803(i)(11)(d) and (l)(6)(D) regarding Trust 
Shares and Index Fund Shares, respectively.
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    The Exchange notes that, as the market for Trust Shares and Index 
Fund Shares in particular and exchange traded funds in general has 
grown and the relevant product lines have matured, there has been an 
increase in the number of methodologies used to calculate the 
underlying indexes. To accommodate this development, the Exchange 
proposes to eliminate any calculation methodology for the underlying 
index from generic listing standards, as has been done by other 
exchanges, including the American Stock Exchange LLC (``Amex'').\6\
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    \6\ See Securities Exchange Act Release No. 55544 (March 27, 
2007), 72 FR 15923 (April 3, 2007) (SR-Amex-2007-07) (order 
approving the elimination from the Amex's generic listing standards 
for portfolio depositary receipts of the requirement that an 
eligible index be calculated and weighted following a specified 
methodology).

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[[Page 54507]]

    The Exchange believes that the proposed elimination of any index 
methodology from its generic listing standards for ETFs would 
potentially reduce the time frame for bringing products based on 
indexes with nontraditional weighting techniques to the market, thereby 
reducing the burdens on issuers and other market participants and 
promoting competition. The Exchange notes that the indexes underlying 
ETFs would continue to be subject to the other requirements of the 
generic listing standards pursuant to Rule 19b-4(e). For example, the 
generic listing standards for Trust Shares will continue to require, 
without limitation: that the most heavily weighted component stock of 
an index not exceed 25% of the weight of the index where the index is 
comprised solely of Non-U.S. Component Stocks or of both U.S. Component 
Stocks and Non-U.S. Component Stocks (``Combination Stocks'') or 30% 
where the index is comprised solely of U.S. Component Stocks; \7\ that 
the five most heavily weighted component stocks of an index not exceed 
60% of the weight of the index where the index is comprised solely of 
Non-U.S. Component Stocks or of Combination Stocks or 65% of the weight 
of the index where the index is comprised solely of U.S. Component 
Stocks; and that an index include a minimum of 20 component stocks 
where the index is comprised solely of Non-U.S. Component Stocks or of 
Combination Stocks or 13 component stocks where the index is comprised 
solely of U.S. Component Stocks.\8\ The generic listing standards for 
Index Fund Shares will continue to have similar requirements that are 
dependent on whether the index is comprised of U.S. Component Stocks, 
Non-U.S. Component Stocks, or Combination Stocks.\9\ The Exchange 
believes that such requirements will ensure that the indexes are 
sufficiently diversified, and that their components are sufficiently 
liquid to underlie the ETFs.
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    \7\ A U.S. Component Stock is an equity security that is 
registered under Sections 12(b) or 12(g) of the Act or an American 
Depository Receipt (ADR) the underlying equity security of which is 
registered under Sections 12(b) or 12(g) of the Act. A Non-U.S. 
Component Stock is an equity security that is not registered under 
Sections 12(b) or 12(g) of the Act and that is issued by an entity 
that (a) is not organized, domiciled or incorporated in the United 
States, and (b) is an operating company (including real estate 
investment trusts (REITs) and income trusts, but excluding 
investment trusts, unit trusts, mutual funds, and derivatives). See 
Phlx Rules 803(i)(1) and 803(l)(2).
    \8\ See Phlx Rule 803(i)(11)(a) and (b).
    \9\ See Phlx Rule 803(l)(6)(A) and (B).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of section 6 of the Act,\10\ in general, and with 
section 6(b)(5) of the Act,\11\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to remove impediments to a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \10\ 15 U.S.C. 78f.
    \11\ 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 would 
result in 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 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 an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2007-43 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-Phlx-2007-43. 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 Phlx. 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-Phlx-2007-43 and should be 
submitted on or before October 16, 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 a national securities 
exchange \12\ and, in particular, the requirements of section 6 of the 
Act.\13\ Specifically, the Commission finds that the proposed rule 
change is consistent with section 6(b)(5) of the Act,\14\ 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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    \12\ 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).
    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(5).
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    As the market for ETFs has grown, the variety of weighting and 
calculation methodologies for underlying indexes has also expanded, 
limiting the applicability of Phlx's current generic ETF listing 
standards. The Commission believes that the proposed elimination of 
index methodology from its generic listing standards for ETFs would 
potentially reduce the time frame for bringing ETFs based on indexes 
with nontraditional weighting techniques to

[[Page 54508]]

the market, thereby reducing the burdens on issuers and other market 
participants and promoting competition, without compromising investor 
protection.
    The Commission notes that Phlx's generic listing standards for 
Trust Shares and Index Fund Shares based on domestic indexes or 
portfolios 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, the five most heavily weighted component stocks of 
an index not exceed 65% of the weight of the index, and that an index 
include a minimum of 13 component stocks.\15\ Therefore, the Commission 
believes that indexes underlying ETFs will continue to be sufficiently 
broad-based in scope to minimize potential manipulation.
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    \15\ See Phlx Rules 803(i)(11)(a) and 803(l)(6)(A).In addition, 
on July 11, 2007, the Commission approved generic listing standards 
for ETFs based on international or global indexes. See Securities 
Exchange Act Release No. 56049 (July 11, 2007), 72 FR 39121 (July 
17, 2007) (SR-Phlx-2007-20). These newly adopted generic listing 
standards require, without limitation, that the most heavily 
weighted component stock of an index not exceed 25% of the weight of 
the index, the five most heavily weighted component stocks of an 
index not exceed 60% of the weight of the index, and that an index 
include a minimum of 20 component stocks.
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Acceleration

    The Commission finds good cause for approving the proposed rule 
change, as amended, prior to the 30th day after the date of publication 
of the notice of filing thereof in the Federal Register. The Commission 
notes that Phlx's proposal is substantially similar to a proposed rule 
change of another exchange recently approved by the Commission.\16\ 
Phlx's proposal does not raise any novel regulatory issues and, 
therefore, the Commission believes that good cause exists for approving 
the filing in an expedited basis.
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    \16\ See supra note 6.
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    Therefore, the Commission finds good cause, consistent with section 
19(b)(2) of the Act,\17\ to approve the proposed rule change as amended 
on an accelerated basis.
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    \17\ 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,\18\ that the proposed rule change (SR-Phlx-2007-43), as modified 
by Amendment No. 1, be, and it hereby is, approved on an accelerated 
basis.
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    \18\ Id.
    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
Florence E. Harmon,
Deputy Secretary.9
 [FR Doc. E7-18821 Filed 9-24-07; 8:45 am]

BILLING CODE 8010-01-P