Document ID: SEC-2008-0627-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Change NYSE Arca, Inc.
Posted Date: 2008-04-29T04:00Z

[Federal Register: April 29, 2008 (Volume 73, Number 83)]
[Notices]               
[Page 23281-23287]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29ap08-114]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57701; File No. SR-NYSEArca-2008-20]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, To Adopt Listing Rules Relating to Fixed Income Index-Linked 
Securities, Futures-Linked Securities, and Multifactor Index-Linked 
Securities

April 23, 2008.

I. Introduction

    On February 14, 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''), 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 to adopt generic listing 
standards for Fixed Income Index-Linked Securities, Futures-Linked 
Securities, and Multifactor Index-Linked Securities. On March 14, 2008, 
the Exchange filed Amendment No. 1 to the proposed rule change. The 
proposed rule change, as amended, was published for comment in the 
Federal Register on March 24, 2008.\3\ The Commission received no 
comments on the proposal. This order approves the proposed rule change, 
as modified by Amendment No. 1 thereto.
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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. 57505 (March 14, 
2008), 73 FR 15550.
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II. Description of the Proposal

    The Exchange proposes to amend NYSE Arca Equities Rule 5.2(j)(6) 
\4\ to

[[Page 23282]]

adopt new generic listing standards, pursuant to which the Exchange 
would be able to list and trade Fixed Income Index-Linked Securities, 
Futures-Linked Securities, and Multifactor Index-Linked Securities 
without Commission approval under Rule 19b-4(e) under the Act.\5\ The 
Exchange also proposes to make conforming changes to Commentary .01 to 
NYSE Arca Equities Rule 5.2(j)(6) to extend its application to Futures-
Linked Securities and Multifactor Index-Linked Securities that are 
composed in part of Commodity, Currency, or Futures Reference Assets 
(as defined herein).
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    \4\ NYSE Arca Equities Rule 5.2(j)(6) currently sets forth the 
Exchange's generic listing standards for Equity Index-Linked 
Securities, Commodity-Linked Securities, and Currency-Linked 
Securities. See NYSE Arca Equities Rule 5.2(j)(6). 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 (as defined in 
NYSE Arca Equities Rule 8.201), or a basket or index of any of the 
foregoing (``Commodity Reference Asset''). 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 (as defined in NYSE Arca Equities Rule 8.202), 
or a basket or index of any of the foregoing (``Currency Reference 
Asset''). As a result of the proposed rule change, ``Index-Linked 
Securities,'' which currently include Equity Index-Linked 
Securities, Commodity-Linked Securities, and Currency-Linked 
Securities, will also include, by definition, Fixed Income Index-
Linked Securities, Futures-Linked Securities, and Multifactor Index-
Linked Securities.
    \5\ Rule 19b-4(e)(1) 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 paragraph (c)(1) of Rule 19b-4 under the Act (17 CFR 
240.19b-4(c)(1)), if the Commission has approved, pursuant to 
Section 19(b) of the Act (15 U.S.C. 78s(b)), 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).
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    The Exchange represents that any securities it lists and/or trades 
pursuant to Rule 19b-4(e)(1) and NYSE Arca Equities Rule 5.2(j)(6), as 
amended, will satisfy the proposed standards set forth therein. The 
Exchange states that within five business days after commencement of 
trading of any such security under NYSE Arca Equities Rule 5.2(j)(6), 
as amended, the Exchange will file a Form 19b-4(e).\6\
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    \6\ See 17 CFR 240.19b-4(e)(2)(ii); 17 CFR 249.820.
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Fixed Income Index-Linked Securities

    Fixed Income Index-Linked Securities are securities that provide 
for the payment at maturity based on the performance of one or more 
indexes or portfolios of debt securities that are 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 subdivision 
thereof, or a basket or index of any of the foregoing (collectively, 
``Fixed Income Reference Asset''). Fixed Income Index-Linked 
Securities, like other Index-Linked Securities, will be subject to the 
general criteria in NYSE Arca Equities Rule 5.2(j)(6)(A) for initial 
listing.
    For the initial listing of a series of Fixed Income Index-Linked 
Securities, the Fixed Income Reference Asset must either: (1) Have been 
reviewed and approved for the trading of options, Investment Company 
Units (as defined in NYSE Arca Equities Rule 5.2(j)(3)), or other 
derivatives by the Commission under Section 19(b)(2) of the Act \7\ and 
rules thereunder and the conditions set forth in the Commission's 
approval order continue to be satisfied, or (2) meet the following 
requirements: \8\
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    \7\ 15 U.S.C. 78s(b)(2).
    \8\ The Exchange notes that the quantitative standards for Fixed 
Income Reference Assets are substantially similar to those set forth 
under Commentary .02 to NYSE Arca Equities Rule 5.2(j)(3) relating 
to fixed income securities underlying Investment Company Units. See 
Commentary .02 to NYSE Arca Equities Rule 5.2(j)(3).
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     Components of the Fixed Income Reference Asset that, in 
the aggregate, account for at least 75% of the dollar weight of the 
Fixed Income Reference Asset must each have a minimum original 
principal amount outstanding of $100 million or more;
     A component of the Fixed Income Reference Asset may be a 
convertible security, however, once the convertible security component 
converts to the underlying equity security, the component is removed 
from the Fixed Income Reference Asset;
     No component of the Fixed Income Reference Asset 
(excluding Treasury Securities and GSE Securities) will represent more 
than 30% of the dollar weight of the Fixed Income Reference Asset, and 
the five highest dollar weighted components in the Fixed Income 
Reference Asset will not, in the aggregate, account for more than 65% 
of the dollar weight of the Fixed Income Reference Asset;
     An underlying Fixed Income Reference Asset (excluding one 
consisting entirely of exempted securities) \9\ must include a minimum 
of 13 non-affiliated issuers; and
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    \9\ The Exchange notes that, for purposes of this standard, 
``exempted securities'' refers to Treasury Securities and GSE 
Securities, as defined in proposed NYSE Arca Equities Rule 
5.2(j)(6)(iv).
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     Component securities that, in the aggregate, account for 
at least 90% of the dollar weight of the Fixed Income Reference Asset 
must be from one of the following: (1) Issuers that are required to 
file reports pursuant to Sections 13 and 15(d) of the Act; \10\ or (2) 
issuers that have a worldwide market value of outstanding common equity 
held by non-affiliates of $700 million or more; or (3) issuers that 
have outstanding securities that are notes, bonds, debentures, or 
evidence of indebtedness having a total remaining principal amount of 
at least $1 billion; or (4) exempted securities, as defined in Section 
3(a)(12) of the Act; \11\ or (5) issuers that are a government of a 
foreign country or a political subdivision of a foreign country.
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    \10\ 15 U.S.C. 78m; 15 U.S.C. 78o(d).
    \11\ 15 U.S.C. 78c(a)(12).
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    With respect to any series of Fixed Income Index-Linked Securities, 
the value of the Fixed Income Reference Asset must be widely 
disseminated to the public by one or more major market vendors at least 
once per business day. In addition, the Exchange will commence 
delisting or removal proceedings if: \12\
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    \12\ The Exchange notes that the continued listing standards for 
each of Fixed Income Index-Linked Securities, Futures-Linked 
Securities, and Multifactor Index-Linked Securities are 
substantially similar to those standards currently applicable to 
other Index-Linked Securities.
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     Any of the initial listing criteria for Fixed Income 
Index-Linked Securities are not continuously maintained;
     The aggregate market value or the principal amount of the 
Fixed Income Index-Linked Securities publicly held is less than 
$400,000;
     The value of the Fixed Income Reference Asset is no longer 
calculated or available and a new Fixed Income Reference is 
substituted, unless the new Fixed Income Reference Asset meets the 
requirements of NYSE Arca Equities Rule 5.2(j)(6); or
     Such other event shall occur or condition exists that, in 
the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable.

Futures-Linked Securities

    Futures-Linked Securities are securities that provide for the 
payment at maturity based on the performance of an index of (1) 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 (2) interest rate futures or 
options or derivatives on the foregoing (collectively, ``Futures 
Reference Asset''). Futures-Linked Securities will also be subject to 
the general criteria in NYSE Arca Equities Rule 5.2(j)(6)(A) for 
initial listing. An issue of Futures-Linked Securities must meet one of 
the initial listing standards set forth below:
     The Futures Reference Asset to which the security is 
linked shall have been reviewed and approved for the trading of 
Futures-Linked Securities or options or other derivatives by the 
Commission under Section 19(b)(2) of the Act \13\ and rules thereunder 
and the

[[Page 23283]]

conditions set forth in the Commission's approval order, including with 
respect to comprehensive surveillance sharing agreements, continue to 
be satisfied; or
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    \13\ 15 U.S.C. 78s(b)(2).
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     The pricing information for components of a Futures 
Reference Asset must be derived from a market which is an Intermarket 
Surveillance Group (``ISG'') member or affiliate member or with which 
the Exchange has a comprehensive surveillance sharing agreement. A 
Futures Reference Asset may include components representing not more 
than 10% of the dollar weight of such Futures Reference Asset for which 
the pricing information is derived from markets that do not meet the 
specified foregoing requirements; provided, however, that no single 
component subject to this exception exceeds 7% of the dollar weight of 
the Futures Reference Asset.
    In addition, an issue of Futures-Linked Securities must meet both 
of the following initial listing criteria:
     The value of the Futures Reference Asset must be 
calculated and widely disseminated by one or more major market data 
vendors on at least a 15-second basis during the Core Trading Session 
(as defined in NYSE Arca Equities Rule 7.34); \14\ and
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    \14\ See NYSE Arca Equities Rule 7.34 (generally describing the 
three trading sessions of the Exchange to include the Opening 
Session, from 4 a.m. to 9:30 a.m. Eastern Time or ``ET,'' Core 
Trading Session, from 9:30 a.m. to 4 p.m. ET, and Late Trading 
Session, from 4 p.m. to 8 p.m. ET).
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     In the case of Futures-Linked Securities that are 
periodically redeemable, the indicative value of the subject Futures-
Linked Securities must be calculated and widely disseminated by the 
Exchange or one or more major market data vendors on at least a 15-
second basis during the Core Trading Session.
    The Exchange will commence delisting or removal proceedings if:
     Any of the initial listing criteria for Futures-Linked 
Securities are not continuously maintained;
     The aggregate market value or the principal amount of the 
Futures-Linked Securities publicly held is less than $400,000;
     The value of the Futures Reference Asset is no longer 
calculated or available and a new Futures Reference Asset is 
substituted, unless the new Futures Reference Asset meets the 
requirements of NYSE Arca Equities Rule 5.2(j)(6); or
     Such other event shall occur or condition exists which, in 
the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable.

Multifactor Index-Linked Securities

    Multifactor Index-Linked Securities are securities that provide for 
payment at maturity 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 (collectively, the ``Multifactor Reference Asset,'' and together 
with Equity Reference Assets, Commodity Reference Assets, Currency 
Reference Assets, Fixed Income Reference Assets, and Futures Reference 
Assets, collectively, the ``Reference Assets''). In addition, a 
Multifactor Reference Asset may include as a component a notional 
investment in cash or a cash equivalent based on a widely accepted 
overnight loan interest rate, London Interbank Offered Rate 
(``LIBOR''), Prime Rate, or an implied interest rate based on observed 
market spot and foreign currency forward rates. The Exchange states 
that, for purposes of a notional investment as a component of a 
Multifactor Reference Asset, a long LIBOR weighting would represent a 
leverage charge offsetting long positions in the underlying Reference 
Assets.
    Multifactor Index-Linked Securities will be subject to the general 
criteria under NYSE Arca Equities Rule 5.2(j)(6)(A) for initial 
listing. In addition, for a series of Multifactor Index-Linked 
Securities to be appropriate for listing, each component of the 
Multifactor Reference Asset must either: (1) Have been reviewed and 
approved for the trading of options, Investment Company Units, or other 
derivatives under Section 19(b)(2) of the Act \15\ and rules thereunder 
and the conditions set forth in the Commission's approval order 
continued to be satisfied; or (2) meet the applicable requirements for 
initial and continued listing set forth in the relevant section of NYSE 
Arca Equities Rule 5.2(j)(6). In addition, an issue of Multifactor 
Index-Linked Securities must meet both of the following initial listing 
criteria:
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    \15\ 15 U.S.C. 78s(b)(2).
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     The value of the Multifactor Reference Asset must be 
calculated and widely disseminated to the public on at least a 15-
second basis during the time the Multifactor Index-Linked Security 
trades on the Exchange; and
     In the case of Multifactor Index-Linked Securities that 
are periodically redeemable, the indicative value of the Multifactor 
Index-Linked Securities must be calculated and widely disseminated by 
one or more major market data vendors on at least a 15-second basis 
during the time the Multifactor Index-Linked Securities trade on the 
Exchange.
    The Exchange will commence delisting or removal proceedings if:
     Any of the initial listing criteria for Multifactor Index-
Linked Securities are not continuously maintained;
     The aggregate market value or the principal amount of the 
Multifactor Index-Linked Securities publicly held is less than 
$400,000;
     The value of the Multifactor Reference Asset is no longer 
calculated or available and a new Multifactor Reference Asset is 
substituted, unless the new Multifactor Reference Asset meets the 
requirements of NYSE Arca Equities Rule 5.2(j)(6); or
     Such other event shall occur or condition exists that, in 
the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable.

Information Circular

    Upon evaluating the nature and complexity of each Fixed Income 
Index-Linked Security, Futures-Linked Security, or Multifactor Index-
Linked Security, the Exchange represents that it will prepare and 
distribute, if appropriate, an Information Circular to ETP Holders\16\ 
describing the product. Accordingly, the Information Circular will 
disclose the particular structure and corresponding risks of a Fixed 
Income Index-Linked Security, Futures-Linked Security, or Multifactor 
Index-Linked Security traded on the Exchange. In particular, the 
Information Circular will set forth the Exchange's suitability rule 
that requires ETP Holders recommending a transaction in Fixed Income 
Index-Linked Securities, Futures-Linked Securities, or Multifactor 
Index-Linked Securities: (1) To determine that such transaction is 
suitable for the customer (NYSE Arca Equities Rule 9.2(a)); and (2) to 
have a reasonable basis for believing that the customer can evaluate 
the special characteristics, and is able to bear the financial risks, 
of such transaction. In addition, the Information Circular will 
reference the requirement that ETP Holders must deliver a prospectus to 
investors purchasing newly issued Index-Linked Securities prior to or 
concurrently with the confirmation of a transaction. The Information 
Circular will also note that all of the Exchange's equity trading rules 
will be applicable to trading in Fixed Income Index-Linked

[[Page 23284]]

Securities, Futures-Linked Securities, and Multifactor Index-Linked 
Securities. Finally, the Information Circular will discuss the risks 
involved in trading such securities during the Opening and Late Trading 
Sessions\17\ when an updated indicative value or Reference Asset value, 
as applicable, will not be calculated or publicly disseminated.
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    \16\ ETP Holder refers to a sole proprietorship, partnership, 
corporation, limited liability company, or other organization in 
good standing that has been issued an Equity Trading Permit or 
``ETP.'' An ETP Holder must be a registered broker or dealer 
pursuant to Section 15 of the Act. See NYSE Arca Equities Rule 
1.1(n).
    \17\ See supra note 14.
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Surveillance

    The Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products (including Index-Linked 
Securities) to monitor trading in Fixed Income Index-Linked Securities, 
Futures-Linked Securities, and Multifactor Index-Linked Securities. The 
Exchange represents that these procedures are adequate to properly 
monitor Exchange trading of such securities in all trading sessions and 
to deter and detect violations of Exchange rules. The Exchange's 
current trading surveillance focuses on detecting when securities trade 
outside their normal patterns. When such situations are detected, 
surveillance analysis follows and investigations are opened, where 
appropriate, to review the behavior of all relevant parties for all 
relevant trading violations. The Exchange may also obtain information 
via ISG from other exchanges who are members or affiliate members of 
ISG.\18\ In addition, the Exchange also has a general policy 
prohibiting the distribution of material, non-public information by its 
employees.
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    \18\ The Exchange notes that not all of the instruments 
underlying Index-Linked Securities may trade on exchanges that are 
members or affiliate members of ISG.
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Trading Halts

    If the indicative value or Reference Asset value applicable to a 
series of Index-Linked Securities is not being disseminated as 
required, the Exchange may halt trading during the day on which the 
interruption first occurs. If such interruption persists past the 
trading day in which it occurred, the Exchange will halt trading no 
later than the beginning of the trading day following the interruption.

Firewall Procedures

    Fixed Income Index-Linked Securities, Futures-Linked Securities, 
and Multifactor Index-Linked Securities, like other Index-Linked 
Securities, will be subject to the firewall requirements under NYSE 
Arca Equities Rule 5.2(j)(6)(C). The firewall requirements provide 
that, if the value of an Index-Linked Security is based in whole or in 
part on an index that is maintained by a broker-dealer, the broker-
dealer shall erect a ``firewall'' around the personnel responsible for 
the maintenance of the underlying index or who have access to 
information concerning changes and adjustments to the index, and the 
index shall be calculated by a third party who is not a broker-dealer.
    Furthermore, as provided in NYSE Arca Equities Rule 5.2(j)(6)(C), 
any advisory committee, supervisory board, or similar entity that 
advises an index licensor or administrator or that makes decisions 
regarding the index or portfolio composition, methodology, and related 
matters must implement and maintain, or be subject to, procedures 
designed to prevent the use and dissemination of material, non-public 
information regarding the applicable index or portfolio.

Commentary .01

    The Exchange has also proposed conforming changes to Commentary .01 
to NYSE Arca Equities Rule 5.2(j)(6) relating to the obligations of an 
Exchange ETP Holder acting as a registered Market Maker in order to 
extend its application to Futures-Linked Securities and Multifactor 
Index-Linked Securities to the extent that such securities are 
composed, in part, of Commodity, Currency, or Futures Reference 
Assets.\19\
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    \19\ The Exchange states that Equity Index-Linked Securities and 
Fixed Income Index-Linked Securities are not explicitly included in 
Commentary .01 to NYSE Arca Rule 5.2(j)(6) because such securities 
are already subject to the requirements of NYSE Arca Equities Rule 
7.26 (Limitations on Dealings).
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III. Discussion and Commission's Findings

    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.\20\ In particular, the Commission finds that the proposed 
rule change is consistent with the requirements of Section 6(b)(5) of 
the Act,\21\ which requires, among other things, that the Exchange's 
rules be designed to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, 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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    \20\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \21\ 15 U.S.C. 78f(b)(5).
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A. Generic Listing Standards for Fixed Income Index-Linked Securities, 
Futures-Linked Securities, and Multifactor Index-Linked Securities

    To list and trade Fixed Income Index-Linked Securities, Futures-
Linked Securities, or Multifactor Index-Linked Securities, the Exchange 
currently must file a proposed rule change with the Commission pursuant 
to Section 19(b)(1) of the Act \22\ and Rule 19b-4 thereunder.\23\ 
However, Rule 19b-4(e) provides that the listing and trading of a new 
derivative securities product by an SRO will not be deemed a proposed 
rule change pursuant to Rule 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 derivative securities product, and the SRO has a 
surveillance program for the product class.
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    \22\ 15 U.S.C. 78s(b)(1).
    \23\ 17 CFR 240.19b-4.
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    The Commission has previously approved generic listing standards 
pursuant to Rule 19b-4(e) for Investment Company Units based on the 
performance of fixed income securities and notes that such standards 
are substantially similar to those proposed to be applicable to Fixed 
Income Index-Linked Securities.\24\ In addition, with respect to the 
proposed generic listing standards for Multifactor Index-Linked 
Securities, the Commission has previously approved generic listing 
standards pursuant to Rule 19b-4(e) for Investment Company Units based 
on the performance of a combination of assets.\25\ The Commission also 
notes that the proposed generic standards applicable to Futures-Linked 
Securities are substantively identical to those currently applicable to 
Commodity-Linked Securities with respect to the pricing information for 
the respective

[[Page 23285]]

underlying assets.\26\ Lastly, the Commission notes that the proposed 
continued listing standards for each of Fixed Income Index-Linked 
Securities, Futures-Linked Securities, and Multifactor Index-Linked 
Securities are substantively identical to those standards currently 
applicable to other Index-Linked Securities.\27\
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    \24\ See Commentary .02 to NYSE Arca Equities Rule 5.2(j)(3) 
(setting forth the generic listing and trading standards for 
Investment Company Units based on fixed income securities); see 
supra note 8 and accompanying text.
    \25\ See Commentary .03 to NYSE Arca Equities Rule 5.2(j)(3) 
(setting forth the generic listing and trading standards for 
Investment Company Units based on a combination of assets 
representing equity and fixed income securities and requiring that 
each index or portfolio of equity or fixed income component 
securities separately satisfy its own applicable generic criteria 
for listing and trading pursuant to Rule 19b-4(e)).
    \26\ See NYSE Arca Equities Rule 5.2(j)(6)(B)(II); see also 
infra note 38 and accompanying text.
    \27\ See supra note 12.
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    In approving these securities for Exchange trading, the Commission 
considered applicable Exchange rules that govern their trading. The 
Commission believes that generic listing standards for Fixed Income 
Index-Linked Securities, Futures-Linked Securities, and Multifactor 
Index-Linked Securities should fulfill the intended objective of Rule 
19b-4(e) and allow securities that satisfy the proposed generic listing 
standards to commence trading without the need for public comment and 
Commission approval.\28\ The Exchange's ability to rely on Rule 19b-
4(e) to list and trade Fixed Income Index-Linked Securities, Futures-
Linked Securities, and Multifactor Index-Linked Securities that meet 
the applicable requirements and minimum standards should reduce the 
time frame for bringing these securities to market and thereby reduce 
the burdens on issuers and other market participants, while also 
promoting competition and making such securities available to investors 
more quickly.
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    \28\ The Commission notes that the failure of a particular 
product or index to comply with the proposed generic listing 
standards under Rule 19b-4(e), however, would not preclude the 
Exchange from submitting a separate filing pursuant to Section 
19(b)(2) of the Act, requesting Commission approval to list and 
trade a particular series of Index-Linked Securities.
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B. Listing and Trading Fixed Income Index-Linked Securities, Futures-
Linked Securities, and Multifactor Index-Linked Securities

    Taken together, the Commission finds that the proposal contains 
adequate rules and procedures to govern the listing and trading of 
Fixed Income Index-Linked Securities, Futures-Linked Securities, and 
Multifactor Index-Linked Securities pursuant to Rule 19b-4(e) on the 
Exchange. Products listed and traded under the proposed generic 
standards will be subject to the full panoply of NYSE Arca Equities 
rules and procedures that currently govern the trading of equity 
securities on the Exchange.
    The listing requirements under NYSE Arca Equities Rule 
5.2(j)(6)(A), which set forth criteria applicable to all Index-Linked 
Securities, will apply to Fixed Income Index-Linked Securities, 
Futures-Linked Securities, and Multifactor Index-Linked Securities 
under the proposed rule change.\29\ With respect to Fixed Income Index-
Linked Securities, the definition of Fixed Income Reference Asset 
includes the same types of fixed income securities that may underlie 
Investment Company Units under Commentary .02 to NYSE Arca Equities 
Rule 5.2(j)(3).\30\ In addition, the Exchange's proposed eligibility 
criteria for Fixed Income Reference Assets, which are substantively 
identical to the criteria applicable to fixed income-based Investment 
Company Units, include, among other things, minimum standards relating 
to original principal amount outstanding for each component of the 
Fixed Income Reference Asset, maximum concentration limits for each 
such component, and minimum number of non-affiliated issuers of such 
components.\31\ The Commission believes that these requirements should 
help to ensure that the underlying components of a Fixed Income 
Reference Asset are adequately capitalized, sufficiently liquid, and 
diversified. In addition, the Fixed Income Reference Asset must be 
widely disseminated to the public by one or more major market vendors 
at least once per business day.
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    \29\ See NYSE Arca Equities Rule 5.2(j)(6)(A) (providing, among 
other things, minimum tangible net worth requirements of each issuer 
of Index-Linked Securities, and minimum distribution and holder, 
principal amount/market value, and term thresholds for each issuance 
of such securities).
    \30\ Compare proposed NYSE Arca Equities Rule 5.2(j)(6)(iv) with 
Commentary .02 to NYSE Arca Equities Rule 5.2(j)(3).
    \31\ See supra note 8.
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    In the case of Futures-Linked Securities, the underlying asset must 
either be an index of (1) 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 (2) interest rate futures, or options on, or derivatives 
of, such interest rate futures. In addition, as with Commodity 
Reference Assets, Futures Reference Assets to which Futures-Linked 
Securities are linked must either have been reviewed and approved for 
trading by the Commission or the pricing information of their 
underlying components must be derived from certain required sources, 
subject to exceptions.\32\ These requirements should help to ensure 
that the components comprising a Futures Reference Asset are adequately 
transparent and subject to rules and standards of applicable exchanges 
that trade such components and that the Exchange is able to obtain 
information with respect to disruptions in, or unusual trading of, such 
components.\33\ To enhance the transparency of such Futures-Linked 
Securities, the proposal also would require (1) the value of the 
Futures Reference Asset to be calculated and widely disseminated by one 
or more major market data vendors on at least a 15-second basis during 
the Core Trading Session, (2) in the case of Futures-Linked Securities 
that are periodically redeemable, the indicative value of such 
securities to be calculated and widely disseminated by the Exchange or 
one or more major market data vendors on at least a 15-second basis 
during the Core Trading Session.
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    \32\ See infra note 38 and accompanying text.
    \33\ See id.
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    In the case of Multifactor Index-Linked Securities, the Multifactor 
Reference Asset may be comprised of any combination of two or more 
Reference Assets and a notional investment in cash or a cash equivalent 
based on a widely accepted overnight loan interest rate, LIBOR, Prime 
Rate, or an implied interest rate based on observed market spot and 
foreign currency forward rates. As stated earlier, the Commission notes 
that the proposed generic standards applicable to Multifactor Index-
Linked Securities are substantially similar to those standards 
applicable to Investment Company Units that are based on a combination 
of equity and fixed income securities in that each underlying Reference 
Asset must satisfy its own applicable minimum criteria and standards 
for the listing and trading of a series of Multifactor Index-Linked 
Securities. In addition, under the proposed rule change, (1) the value 
of the Multifactor Reference Asset must be calculated and widely 
disseminated on at least a 15-second basis during the time such 
securities trade on the Exchange, and (2) in the case of Multifactor 
Index-Linked Securities that are periodically redeemable, the 
indicative value must be calculated and widely disseminated on at least 
a 15-second basis during the time such securities trade on the 
Exchange.
    The Exchange has also developed continued listing criteria that 
would require it to commence delisting or removal proceedings in 
circumstances that make further dealings in Fixed Income Index-Linked 
Securities, Futures-Linked Securities, and Multifactor Index-Linked 
Securities

[[Page 23286]]

inadvisable.\34\ The Commission notes that such standards are 
substantively identical to those continued listing standards currently 
applicable to other Index-Linked Securities, and the Commission 
believes that such delisting criteria should help ensure the 
maintenance of fair and orderly markets for such securities. The 
Commission further notes that, under the proposal, if the indicative 
value or Reference Asset value applicable to a series of Fixed Income 
Index-Linked Securities, Futures-Linked Securities, and Multifactor 
Index-Linked Securities is not disseminated as required, the Exchange 
may halt trading during the day on which the interruption first occurs; 
however, if the interruption persists past the trading day on which it 
occurred, the Exchange will halt trading no later than the beginning of 
the trading day following the interruption. Such provisions relating to 
trading halts currently apply to Index-Linked Securities, and the 
Commission believes that the trading halt requirements promote the 
availability of key information for the benefit investors and other 
market participants.\35\
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    \34\ See proposed NYSE Arca Equities Rules 5.2(j)(6)(B)(IV)(3), 
5.2(j)(6)(B)(V)(2), and 5.2(j)(6)(B)(VI)(3) (providing that the 
Exchange will commence delisting or removal proceedings for any 
series of Fixed Income Index-Linked Securities, Futures-Linked 
Securities, and Multifactor Index-Linked Securities, respectively, 
if: (a) Any of the applicable initial listing criteria are not 
continuously maintained; (b) the aggregate market value or the 
principal amount of the applicable security publicly held is less 
than $400,000; (c) the value of the applicable Reference Asset is no 
longer calculated or available and a new Reference Asset is 
substituted, unless such new Reference Asset meets the applicable 
requirements under NYSE Arca Equities Rule 5.2(j)(6); and (d) such 
other event shall occur or condition exists that, in the opinion of 
the Exchange, makes further dealings inadvisable).
    \35\ See NYSE Arca Equities Rule 5.2(j)(6)(E).
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    Lastly, the Commission notes that the proposal would make 
conforming changes to Commentary .01 to NYSE Arca Equities Rule 
5.2(j)(6) relating to the obligations of an Exchange ETP Holder acting 
as a registered Market Maker.\36\ Specifically, the proposal would 
extend the application of Commentary .01 to NYSE Arca Equities Rule 
5.2(j)(6) to Futures-Linked Securities and Multifactor Index-Linked 
Securities, to the extent such securities are composed, in part, of 
Commodity, Currency, or Futures Reference Assets. The Commission 
believes that this proposal should deter conflicts of interest and the 
use of material, non-public information with respect to ETP Holders 
that engage in transactions that involve Futures-Linked Securities and 
certain Multifactor Index-Linked Securities and the relevant components 
that underlie such securities.\37\
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    \36\ See Commentary .01 to NYSE Arca Equities Rule 5.2(j)(6) 
(setting forth, among other things, restrictions on dealings of ETP 
Holders acting as registered Market Makers, requirements relating to 
restrictions to the flow of material, non-public information, and 
obligations relating to the maintenance of certain accounts and 
books and records).
    \37\ See supra note 19.
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C. Surveillance

    The Commission notes that Fixed Income Index-Linked Securities, 
Futures-Linked Securities, and Multifactor Index-Linked Securities 
would be subject to the Exchange's existing surveillance procedures 
applicable to derivative products (including Index-Linked Securities). 
The Exchange has represented that its surveillance procedures are 
adequate to properly monitor the trading of Index-Linked Securities 
listed pursuant to these proposed generic listing standards in all 
trading sessions and to deter and detect violations of Exchange rules. 
In addition, the Commission notes that, with respect to the proposed 
Fixed Income-Linked Securities, Futures-Linked Securities, and 
Multifactor Index-Linked Securities, the Exchange has represented that 
it will be able to obtain information from those markets that are full 
members or affiliate members of the ISG and that the Exchange has a 
general policy prohibiting the distribution of material, non-public 
information by its employees. The Commission further notes that, for 
Futures-Linked Securities, the pricing information for components of a 
Futures Reference Asset must be derived from a market that is an ISG 
member or affiliate member or with which the Exchange has a 
comprehensive surveillance sharing agreement, subject to certain 
exceptions.\38\
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    \38\ See proposed NYSE Arca Equities Rule 5.2(j)(6)(B)(V)(1)(b) 
(providing that the Futures Reference Asset may not include 
components representing more than 10% of the dollar weight of such 
Futures Reference Asset for which the pricing information is derived 
from markets that are neither ISG members or parties to a 
comprehensive surveillance sharing agreement with the Exchange and 
that no such single component may exceed 7% of the dollar weight of 
the Futures Reference Asset).
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D. Information Circular

    The Exchange has represented that, upon evaluating the nature and 
complexity of each Fixed Income Index-Linked Security, Futures-Linked 
Security, and Multifactor Index-Linked Security, it will prepare and 
distribute, as appropriate, an Information Circular to ETP Holders 
describing the product, the particular structure of the product, and 
the corresponding risks of the Index-Linked Security traded on the 
Exchange. In addition, the Information Circular will set forth the 
Exchange's suitability requirements with respect to recommendations in 
transactions in Fixed Income Index-Linked Securities, Futures-Linked 
Securities, and Multifactor Index-Linked Securities to customers and 
the prospectus delivery requirements for such products. The Information 
Circular will also identify and describe the Exchange's trading rules 
governing the trading of Fixed Income Index-Linked Securities, Futures-
Linked Securities, and Multifactor Index-Linked Securities and will 
discuss the risks involved in trading such securities during the 
Opening and Late Trading Sessions when an updated indicative value or 
Reference Asset value, as applicable, will not be calculated or 
publicly disseminated.\39\
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    \39\ See supra note 14.
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E. Firewall Procedures

    Fixed Income Index-Linked Securities, Futures-Linked Securities, 
and Multifactor Index-Linked Securities, like other Index-Linked 
Securities, will be subject to the existing firewall requirements under 
NYSE Arca Equities Rule 5.2(j)(6)(C). The firewall requirements provide 
that, if the value of an Index-Linked Security is based in whole or in 
part on an index that is maintained by a broker-dealer, the broker-
dealer shall erect a ``firewall'' around the personnel responsible for 
the maintenance of the underlying index or who have access to 
information concerning changes and adjustments to the index, and the 
index shall be calculated by a third party who is not a broker-dealer.
    Furthermore, as provided in existing NYSE Arca Equities Rule 
5.2(j)(6)(C), any advisory committee, supervisory board, or similar 
entity that advises an index licensor or administrator or that makes 
decisions regarding the index or portfolio composition, methodology, 
and related matters must implement and maintain, or be subject to, 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the applicable index or portfolio.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\40\ that the proposed rule change (SR-NYSEArca-2008-20), as 
modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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    \40\ 15 U.S.C. 78s(b)(2).

[[Page 23287]]

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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-9320 Filed 4-28-08; 8:45 am]

BILLING CODE 8010-01-P