Document ID: SEC-2008-1423-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2008-10-14T04:00Z

[Federal Register: October 14, 2008 (Volume 73, Number 199)]
[Notices]               
[Page 60745-60747]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14oc08-101]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58745; File No. SR-NYSEArca-2008-94]

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

October 7, 2008.
    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''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend NYSE Arca Equities Rules 
5.1(b)(14) and 5.2(j)(2) to permit the listing of Equity Linked Notes 
(``ELNs'') that are linked to securities issued by companies registered 
under the Investment Company Act of 1940 (``1940 Act'') \3\ and are 
listed on a national securities exchange. The proposed rule change was 
published in the Federal Register on September 19, 2008 for a 15-day 
comment period.\4\ The Commission received no comments on the proposal. 
This order grants approval to the proposed rule change on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 80a-1.
    \4\ See Securities Exchange Act Release No. 58518 (September 11, 
2008), 73 FR 54446.
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I. Description of the Proposal

    The Exchange proposes to amend NYSE Arca Equities Rules 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 issued by companies 
registered under the 1940 Act and are listed on a national securities 
exchange.

A. 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 common stocks or non-convertible preferred stocks. The 
Exchange proposes to amend NYSE Arca Equities Rule 5.1(b)(14) and 
define ELNs as notes that are linked, in whole or in part, to

[[Page 60746]]

the market performance of up to thirty underlying equity securities 
that meet the criteria in NYSE Arca Equities Rule 5.2(j)(2).

B. Securities Underlying ELNs

    NYSE Arca Equities Rule 5.2(j)(2) currently provides minimum 
standards applicable to the securities underlying ELNs 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 under 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 linked must be listed on a national securities exchange.
    The Exchange further proposes to replace the term ``common stock'' 
with the term ``shares'' in NYSE Arca Equities Rule 5.2(j)(2)(C)(ii)(2) 
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 delete the term 
``common'' when it qualifies ``shares'' 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.'' For purposes of NYSE Arca Equities Rule 5.2(j)(2), 
as amended, the term ``shares'' shall encompass common stock, non-
convertible preferred stock, and securities issued by 1940 Act 
registered investment companies as eligible underlying securities. As a 
result, 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 Depositary Shares 
(``ADSs'')) at least 50% of the combined worldwide 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 
underlying 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 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.

C. Additional Technical Changes

    Lastly, 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).

II. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Exchange Act \5\ and the rules and regulations thereunder applicable to 
a national securities exchange.\6\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Exchange 
Act,\7\ which requires, among other things, that the Exchange's rules 
be 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, 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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    \5\ 15 U.S.C. 78f.
    \6\ In approving this proposed rule change the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
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    With respect to the proposal to expand the listing criteria for 
ELNs to encompass notes that are linked to the securities of 1940 Act 
registered investment companies, the Commission notes that the proposed 
rule requires such securities to be listed and trading on a national 
securities exchange. The Commission also notes that the issuers of such 
underlying securities must be registered under the 1940 Act and, 
pursuant to the disclosure requirements thereunder, financial and other 
types of information relating to the registered investment companies 
would be readily available for investors and other market participants. 
Finally, the Commission notes that the securities issued by 1940 Act 
registered investment companies would trade on the same platforms as 
equity securities under the Exchange Act and would be subject to the 
same Exchange trading rules as equity securities. As such, the 
Commission believes that this proposal will benefit investors by 
providing investors and other market participants with enhanced 
investment options and flexibility, while maintaining sufficient 
transparency and minimum standards with respect to the securities 
underlying ELNs.
    The Commission also believes that the proposed amendments in NYSE 
Arca Equities Rules 5.2(j)(2)(C)(ii)(2) and 5.2(j)(2)(D)(i) to 
characterize the word ``shares'' conform with the overall purpose of 
the proposed rule change and clarify the application of the proposed 
amendments as they relate to the eligibility of securities underlying 
ELNs. In addition, the Commission believes that the additional 
technical corrections made to NYSE Arca Equities Rule 5.2(j)(2) further 
clarify the application of the rule. For the foregoing reasons, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Exchange Act \8\ and the rules and regulations 
thereunder applicable to a national securities exchange.
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    \8\ 15 U.S.C. 78f(b)(5).

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[[Page 60747]]

III. Accelerated Approval

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Exchange Act,\9\ for approving the proposed rule change prior to 
the thirtieth day after the date of publication of the Notice in the 
Federal Register. The Commission notes that the proposal is similar to 
NYSE Arca Equities Rule 5.2(j)(6)(B)(I), the Exchange's Equity Index-
Linked Securities listing rules, which allow underlying indexes to 
include, in whole or in part, on securities issued by certain companies 
registered under the 1940 Act and are listed on a national securities 
exchange.\10\ The Commission finds that the proposed rule change does 
not raise any novel regulatory issues and believes that accelerating 
approval of this proposal should benefit investors by creating, without 
undue delay, additional competition in the marketplace for ELNs.
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    \9\ 15 U.S.C. 78s(b)(2).
    \10\ See Securities Exchange Act Release No. 56879 (December 3, 
2007), 72 FR 69271 (December 7, 2007) (SR-NYSEArca-2007-110).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\11\ that the proposed rule change (SR-NYSEArca-2008-94) 
be, and it hereby is, approved on an accelerated basis.
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    \11\ 15 U.S.C. 78s(b)(2).
    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-24238 Filed 10-10-08; 8:45 am]

BILLING CODE 8011-01-P