Document ID: SEC-2008-1278-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2008-09-19T04:00Z

[Federal Register: September 19, 2008 (Volume 73, Number 183)]
[Notices]               
[Page 54446-54448]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19se08-110]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58518; File No. SR-NYSEArca-2008-94]

 
Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by NYSE Arca, Inc. Amending NYSE Arca Equities Rules 5.1(b)(14) 
and 5.2(j)(2) To Permit the Listing of ELNs That Are Linked to 
Securities Issued by Companies Registered Under the Investment Company 
Act of 1940

Date: September 11, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
\1\ (the ``Exchange Act'') and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on August 25, 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 prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Equities Rule 5.1(b)(14), 
the Exchange's definition of Equity-Linked Notes (``ELNs''), and NYSE 
Arca Equities Rule 5.2(j)(2), the Exchange's listing standards for 
ELNs, to permit the listing of ELNs that are linked to securities that 
are issued by companies registered under the Investment Company Act of 
1940 (``1940 Act'') \3\

[[Page 54447]]

and are listed on a national securities exchange. The text of the 
proposed rule change is available on the Exchange's Web site at http://
www.nyse.com, at the Exchange's principal office, and at the 
Commission's Public Reference Room.\4\
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 80a-1.
    \4\ E-mail from Tim Malinowski, Director, NYSE Euronext, to 
Arisa Tinaves, Division of Trading and Markets, Commission, dated 
September 3, 2008.
---------------------------------------------------------------------------

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 those 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 parts 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 is proposing to amend NYSE Arca Equities Rule 
5.1(b)(14), the Exchange's definition of ELNs, and NYSE Arca Equities 
Rule 5.2(j)(2), the Exchange's listing standards for ELNs, to permit 
the listing of ELNs that are linked to securities that are issued by 
companies registered under the 1940 Act and are listed on a national 
securities exchange, as set forth below. This proposal is based upon 
the Exchanges listing rules for Equity Index-Linked Securities which 
allow underlying indexes to be based in whole or in part upon companies 
registered under the 1940 Act and are listed on a national securities 
exchange.\5\
---------------------------------------------------------------------------

    \5\ See NYSE Arca Equities Rule 5.2(j)(6)(B)(I). See also 
Securities Exchange Act Release No. 56879 (December 3, 2007), 72 FR 
69271 (December 7, 2007) (SR-NYSEArca-2007-110) (approving Equity 
Index-Linked Securities underlying indexes to be based in whole or 
in part upon companies registered under the 1940 Act and are listed 
on a national securities exchange).
---------------------------------------------------------------------------

Definition of ELN
    NYSE Arca Equities Rule 5.1(b)(14) currently defines ELNs as notes 
that are linked, in whole or in part, to the market performance of up 
to thirty (30) common stocks or non-convertible preferred stocks. The 
Exchange proposes to amend the Rule to define ELNs as notes that are 
linked, in whole or in part, to the market performance of up to thirty 
(30) underlying equity securities that meet the criteria in NYSE Arca 
Equities Rule 5.2(j)(2). The Exchange believes that it is more 
appropriate to set forth the criteria for the underlying securities in 
the listing criteria for ELNs rather than in the definitions section. 
Further, the Exchange believes that the cross-reference serves a useful 
purpose in that it alerts readers to the fact that the Exchange has 
listing criteria for ELNs and where it can be found. In addition, the 
Exchange proposes this change in order to avoid the administrative 
burden of amending the definition each time that the Exchange proposes 
to amend the ELN listing criteria.
The Linked Securities
    NYSE Arca Equities Rule 5.2(j)(2)(C) currently provides minimum 
standards applicable to the linked securities and the issuers of such 
securities. Under NYSE Arca Equities Rule 5.2(j)(2)(C)(ii), each issuer 
of an underlying security to which an ELN is to be linked must be a 
reporting company pursuant to the Exchange Act that is listed on a 
national securities exchange. The Exchange proposes to expand this 
provision to provide that an issuer of an underlying security to which 
an ELN is to be linked may also be a 1940 Act registered investment 
company. In addition, the Exchange proposes to further clarify the Rule 
to state that, in either case, any underlying security to which the ELN 
is to be linked must be listed on a national securities exchange.
    The Exchange believes that expanding the listing criteria for ELNs 
to encompass notes that are linked to the securities of investment 
companies will provide investors with enhanced investment options and 
flexibility. The Exchange also believes that there would be no investor 
protection concerns with this expansion because each linked security is 
required to individually satisfy the applicable listing standards set 
forth in Rule 5.2(j)(2), including that the investment company be 
registered under the 1940 Act and that the underlying securities be 
listed on a national securities exchange. The Exchange also believes 
that the availability of financial information for the underlying 
securities of 1940 Act registered investment companies, like the 
Exchange Act reporting companies, have disclosure obligations under the 
federal securities laws. The Exchange believes that such information 
serves to protect investors and the public interest.
    The Exchange notes that 1940 Act registered investment company 
securities trade on the same exchange platforms as equity securities 
registered under the Exchange Act and are subject to the same exchange 
trading rules as equity securities. As such, the Exchange believes that 
it is appropriate to permit 1940 Act registered investment companies to 
be an underlying security for ELNs.
    In NYSE Arca Equities Rule 5.2(j)(2)(C)(ii)(2), the Exchange 
proposes to replace the term ``common stock'' with the term ``shares'' 
in order to take into account that certain underlying securities, 
particularly those that are securities issued by 1940 Act registered 
investment companies, are not labeled ``common stock.'' Similarly, in 
NYSE Arca Equities Rule 5.2(j)(2)(D)(i), the Exchange proposes to 
eliminate the term ``common'' when it qualifies ``shares'' in order to 
take into account that certain underlying securities, particularly 
those that are securities issued by 1940 Act registered investment 
companies, are not labeled ``common shares.''
    As revised, the term ``shares'' shall encompass common stock, non-
convertible preferred stock and securities issued by 1940 Act 
registered investment companies as eligible underlying securities. 
Therefore, with respect to NYSE Arca Equities Rule 5.2(j)(2)(C)(ii)(2), 
the combined trading volume of each non-U.S. security (a security 
issued by a non-U.S. company) and other related non-U.S. securities 
occurring in the U.S. market or in markets with which the Exchange has 
in place a comprehensive surveillance sharing agreement must represent 
(on a share equivalent basis for any American Depository Shares 
(``ADSs'')) at least 50% of the combined world-wide trading volume in 
each such non-U.S. security, other related non-U.S. securities, and 
other classes of common stock, non-convertible preferred stock or 
securities of 1940 Act registered investment companies related to each 
such non-U.S. security, as the case may be, over the six month period 
preceding the date of listing. In addition, with respect to NYSE Arca 
Equities Rule 5.2(j)(2)(D)(i): (1) An issuance of ELNs relating to any 
U.S. security may not exceed five percent of the total outstanding 
common stock, non-convertible preferred stock, or securities of 1940 
Act registered investment companies for each such underlying security, 
as the case may be; and (2) the issuance of ELNs relating to any 
underlying non-U.S. security represented by ADSs, common stock, non-
convertible preferred stock, or securities of 1940 Act registered 
investment companies, or otherwise, may not exceed: (a) Two percent of 
the total shares outstanding of the relevant underlying security 
worldwide if at least 20 percent of the worldwide

[[Page 54448]]

trading volume in each non-U.S. security and related non-U.S. security 
occurs in the U.S. market during the six-month period preceding the 
date of listing; or (b) three percent of the total shares outstanding 
of the relevant underlying security worldwide if at least 50 percent of 
the worldwide trading volume in each non-U.S. security and related non-
U.S. security occurs in the U.S. market during the six-month period 
preceding the date of listing; and (c) five percent of the total shares 
outstanding of the relevant underlying security worldwide if at least 
70 percent of the worldwide trading volume in each non-U.S. security 
and related non-U.S. security occurs in the U.S. market during the six-
month period preceding the date of listing.\6\
---------------------------------------------------------------------------

    \6\ E-mail from Tim Malinowski, Director, NYSE Euronext, to 
Edward Cho, Special Counsel, Division of Trading and Markets, 
Commission, dated September 9, 2008.
---------------------------------------------------------------------------

Additional Technical Changes
    The Exchange proposes to correct the numbering of NYSE Arca 
Equities Rule 5.2(j)(2)(C)(iv) to NYSE Arca Equities Rule 
5.2(j)(2)(C)(iii). The Exchange also proposes to change the reference 
to the Division of Market Regulation to the Division of Trading and 
Markets in NYSE Arca Equities Rule 5.2(j)(2)(D)(i).
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \7\ of the Exchange Act, in general, and furthers the 
objectives of Section 6(b)(5),\8\ 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 mechanisms 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 expanding the listing criteria for ELNs to encompass notes that 
are linked to the securities of investment companies will provide 
investors with enhanced investment options and flexibility. The 
Exchange also believes that the availability of financial information 
for the underlying securities of 1940 Act registered investment 
companies, like the Exchange Act reporting companies, have disclosure 
obligations under the federal securities laws.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 Exchange Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to 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 the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

The Exchange has requested accelerated approval of this proposed rule 
change prior to the 30th day after the date of publication of the 
notice in the Federal Register.\9\
---------------------------------------------------------------------------

    \9\ E-mail from Tim Malinowski, Director, NYSE Euronext, to 
Edward Cho, Special Counsel, Division of Trading and Markets, 
Commission, dated August 27, 2008.
---------------------------------------------------------------------------

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 Exchange 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-2008-94 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-NYSE-Arca-2008-94. 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-2008-94 and should 
be submitted on or before October 6, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-21901 Filed 9-18-08; 8:45 am]

BILLING CODE 8010-01-P