Document ID: SEC-2008-0493-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc
Posted Date: 2008-04-01T04:00Z

[Federal Register: April 1, 2008 (Volume 73, Number 63)]
[Notices]               
[Page 17390-17392]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01ap08-88]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57561; File No. SR-NYSEArca-2008-29]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change and Amendment No. 1 Thereto To Amend the 
Eligibility Criteria for Components of an Index Underlying Investment 
Company Units

March 26, 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 March 13, 2008, 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, II, 
and III below, which Items have been substantially prepared by the 
Exchange. On March 24, 2008, the Exchange filed Amendment No. 1 to the 
proposed rule change. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, 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 amend Commentary .01 to NYSE Arca Equities 
Rule 5.2(j)(3) to modify the eligibility criteria for components of an 
index underlying Investment Company Units (``Units'').\3\ The text of 
the proposed rule change is available at the Exchange, the Commission's 
Public Reference Room, and www.nyse.com.
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    \3\ Units are securities that represent an interest in a 
registered investment company that could be organized as a unit 
investment trust, an open-end management investment company, or a 
similar entity, that holds securities comprising, or otherwise based 
on or representing an interest in, an index or portfolio of 
securities or securities in another registered investment company 
that holds securities. See NYSE Arca Equities 5.2(j)(3).
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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 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
    Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3) provides that 
NYSE Arca Equities may approve a series of Units for listing and/or 
trading (including pursuant to unlisted trading privileges) pursuant to 
Rule 19b-4(e) under the Act,\4\ if such series satisfies the criteria 
set forth in Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3). The 
Exchange proposes to exclude Units and certain other securities defined 
in Section 2 of NYSE Arca Equities Rule 8 (collectively, ``Derivative 
Securities Products'') \5\ when applying the quantitative listing 
requirements of Commentary .01(a)(A) and (B) of NYSE Arca Equities Rule 
5.2(j)(3) relating to the listing of Units based on a U.S. index or 
portfolio or an international or global index or portfolio, 
respectively.
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    \4\ Rule 19b-4(e) under the Act provides that the listing and 
trading of a new derivative securities product by a self-regulatory 
organization (``SRO'') shall not be deemed a proposed rule change, 
pursuant to Rule 19b-4(c)(1) under the Act (17 CFR 240.19b-4(c)(1)), 
if the Commission has approved, pursuant to Section 19(b) of the 
Act, the SRO's trading rules, procedures, and listing standards for 
the product class that would include the new derivatives securities 
product, and the SRO has a surveillance program for the product 
class. See 17 CFR 240.19b-4(e).
    \5\ The following securities are included in Section 2 of NYSE 
Arca Equities Rule 8: Portfolio Depositary Receipts (Rule 8.100); 
Trust Issued Receipts (Rule 8.200); Commodity-Based Trust Shares 
(Rule 8.201); Currency Trust Shares (Rule 8.202); Commodity Index 
Trust Shares (Rule 8.203); Partnership Units (Rule 8.300); and 
Paired Trust Shares (Rule 8.400). The Exchange has also proposed to 
adopt new NYSE Arca Equities Rule 8.600 (Managed Fund Shares). See 
Securities Exchange Act Release No. 57395 (February 28, 2008), 73 FR 
11974 (March 5, 2008) (SR-NYSEArca-2008-25) (proposing, among other 
things, to adopt listing standards for Managed Fund Shares).
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    With respect to Commentary .01(a)(A) to NYSE Arca Equities Rule 
5.2(j)(3), the Exchange proposes to exclude Derivative Securities 
Products, as components, when applying the following existing component 
eligibility requirements: (1) Component stocks that, in the aggregate, 
account for at least 90% of the weight of the index or portfolio each 
must have a minimum market value of at least $75 million (Commentary 
.01(a)(A)(1)); (2) component stocks that, in the aggregate, account for 
at least 90% of the weight of the index or portfolio each must have a 
minimum monthly trading volume during each of the last six months of at 
least 250,000 shares (Commentary .01(a)(A)(2)); and (3) the most 
heavily weighted component stock must not exceed 30% of the weight of 
the index or portfolio, and the five most heavily weighted component 
stocks must not exceed 65% of the weight of the index or portfolio 
(Commentary .01(a)(A)(3)). Component stocks, in the aggregate, 
excluding Derivative Securities Products, would still be required to 
meet the criteria of these provisions. Thus, for example, when 
determining compliance with Commentaries .01(a)(A)(1) and (2) to NYSE 
Arca Equities Rule 5.2(j)(3), component stocks that, in the aggregate, 
account for at least 90% of the remaining index weight, after excluding 
any Derivative Securities Products, would be required to have a minimum 
market value of at least $75 million and minimum monthly trading volume 
of 250,000 shares during each of the last six months, respectively. In 
addition, with respect to Commentary .01(a)(A)(3) to NYSE Arca Equities 
Rule 5.2(j)(3), when determining the component weight for the most 
heavily weighted stock and the

[[Page 17391]]

five most heavily weighted component stocks for an underlying index 
that includes a Derivative Securities Product, the weight of such 
Derivative Securities Product included in the underlying index or 
portfolio would not be considered.
    In addition, the Exchange proposes to modify the requirement in 
Commentary .01(a)(A)(4) to NYSE Arca Equities Rule 5.2(j)(3), which 
requires that the underlying index or portfolio include a minimum of 13 
component stocks. Specifically, the Exchange proposes that there shall 
be no minimum number of component stocks if: (1) One or more series of 
Units or Portfolio Depositary Receipts (as defined in NYSE Arca 
Equities Rule 8.100) constitute, at least in part, components 
underlying a series of Units; or (2) one or more series of Derivative 
Securities Products account for 100% of the weight of the index or 
portfolio. Thus, for example, if the index or portfolio underlying a 
series of Units includes one or more series of Units or Portfolio 
Depositary Receipts, or if it consists entirely of other Derivative 
Securities Products, then there would not be required to be any minimum 
number of component stocks (i.e., one or more components comprising the 
underlying index or portfolio would be acceptable). However, if the 
index or portfolio consists of Derivative Securities Products, other 
than Units or Portfolio Depositary Receipts, and other securities that 
are not Derivative Securities Products (e.g., common stocks), then 
there would have to be at least 13 components in the underlying index 
or portfolio.
    Consistent with current Commentary .01(a)(A)(5) to NYSE Arca 
Equities Rule 5.2(j)(3), all securities in the index or portfolio 
(including Derivative Securities Products) must nevertheless be U.S. 
Component Stocks that are listed on a national securities exchange and 
NMS Stocks, as defined in Rule 600 under the Act.\6\
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    \6\ See 17 CFR 242.600(b)(47).
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    With respect to Commentary .01(a)(B) to NYSE Arca Equities Rule 
5.2(j)(3), the Exchange proposes to exclude Derivative Securities 
Products, as components, when applying the following existing component 
eligibility requirements: (1) Component stocks that, in the aggregate, 
account for at least 90% of the weight of the index or portfolio each 
must have a minimum market value of at least $100 million (Commentary 
.01(a)(B)(1)); (2) component stocks that, in the aggregate, account for 
at least 90% of the weight of the index or portfolio each must have a 
minimum worldwide monthly trading volume during each of the last six 
months of at least 250,000 shares (Commentary .01(a)(B)(2)); and (3) 
the most heavily weighted component stock must not exceed 25% of the 
weight of the index or portfolio, and the five most heavily weighted 
component stocks must not exceed 60% of the weight of the index or 
portfolio (Commentary .01(a)(B)(3)). Thus, for example, when 
determining compliance with Commentaries .01(a)(B)(1) and (2) to NYSE 
Arca Equities Rule 5.2(j)(3), component stocks that, in the aggregate, 
account for at least 90% of the remaining index weight, after excluding 
any Derivative Securities Products, would be required to have a minimum 
market value of at least $100 million and minimum worldwide monthly 
trading volume of 250,000 shares during each of the last six months, 
respectively. In addition, with respect to Commentary .01(a)(B)(3) to 
NYSE Arca Equities Rule 5.2(j)(3), when determining the component 
weight for the most heavily weighted stock and the five most heavily 
weighted component stocks for an underlying index that includes a 
Derivative Securities Product, the weight of such Derivative Securities 
Product included in the underlying index or portfolio would not be 
considered.
    In addition, the Exchange proposes to modify the requirement in 
Commentary .01(a)(B)(4) to NYSE Arca Equities 5.2(j)(3), which requires 
that the underlying index or portfolio include a minimum of 20 
component stocks. Specifically, the Exchange proposes that there shall 
be no minimum number of component stocks if: (1) One or more series of 
Units or Portfolio Depositary Receipts (as defined in NYSE Arca 
Equities Rule 8.100) constitute, at least in part, components 
underlying a series of Units, or (2) one or more series of Derivative 
Securities Products account for 100% of the weight of the index or 
portfolio. Thus, for example, if the index or portfolio underlying a 
series of Units includes one or more series of Units or Portfolio 
Depositary Receipts, or if it consists entirely of other Derivative 
Securities Products, then there would not be required to be any minimum 
number of component stocks (i.e., one or more components comprising the 
underlying index or portfolio would be acceptable). However, if the 
index or portfolio consists of Derivative Securities Products, other 
than Units or Portfolio Depositary Receipts, and other securities that 
are not Derivative Securities Products (e.g., common stocks), then 
there would have to be at least 20 components in the underlying index 
or portfolio.
    Consistent with current Commentary .01(a)(B)(5) to NYSE Arca 
Equities Rule 5.2(j)(3), each component that is a U.S. Component Stock 
(including Derivative Securities Products) would be required to be 
listed on a national securities exchange and be an NMS Stock, as 
defined in Rule 600 under the Act, and each component that is a Non-
U.S. Component Stock (including Derivative Securities Products) would 
be required to be listed and traded on an exchange that has last-sale 
reporting.
    The Exchange believes it is appropriate to exclude Derivative 
Securities Products from certain index component eligibility criteria 
for Units in so far as such Derivative Securities Products are 
themselves subject to specific quantitative listing and continued 
listing requirements of a national securities exchange on which such 
Derivative Securities Products are listed. Derivative Securities 
Products that are components of an index or portfolio underlying a 
series of Units would have been listed and traded on a national 
securities exchange pursuant to a proposed rule change approved by the 
Commission pursuant to Section 19(b)(2) of the Act \7\ or submitted by 
a national securities exchange pursuant to Section 19(b)(3)(A) of the 
Act,\8\ or would have been listed by a national securities exchange 
pursuant to the requirements of Rule 19b-4(e) under the Act.\9\ 
Finally, the Exchange notes that Derivative Securities Products are 
derivatively priced, and, therefore, the Exchange believes that it 
would not be necessary to apply the generic quantitative criteria 
(e.g., market capitalization, trading volume, index or portfolio 
component weighting) applicable to non-Derivative Securities Products 
(e.g., common stocks) to such products.
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    \7\ 15 U.S.C. 78s(b)(2).
    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ See supra note 4.
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2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) of the Act,\10\ which states that an 
exchange have rules that are 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, in general, to protect investors and 
the public interest. The Exchange believes that the proposed rule 
change

[[Page 17392]]

will facilitate the listing and trading of additional types of 
exchange-traded products that will enhance competition among market 
participants, to the benefit of investors and the marketplace. In 
addition, the listing and trading criteria set forth in the proposal 
are intended to protect investors and the public interest.
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    \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 it has neither solicited nor received 
comments on the proposed rule change.

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-2008-29 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-2008-29. 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-2008-29 and should 
be submitted on or before April 22, 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,
Deputy Secretary.
[FR Doc. E8-6657 Filed 3-31-08; 8:45 am]

BILLING CODE 8011-01-P