Document ID: SEC-2007-1495-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NYSE Arca, Inc.
Posted Date: 2007-11-01T04:00Z

[Federal Register: November 1, 2007 (Volume 72, Number 211)]
[Notices]               
[Page 61927-61928]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01no07-94]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56696; File No. SR-NYSEArca-2007-110]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Certain Modifications to the 
Initial Listing and Trading Standards for Equity Index-Linked 
Securities

October 24, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 18, 2007, 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. The Commission is publishing this notice to solicit comments 
on the proposed rule change 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 NYSE Arca Equities Rule 
5.2(j)(6)(B)(I) to permit the listing and trading of Equity Index-
Linked Securities \3\ where the underlying index consists, in whole or 
in part, of (1) securities of closed-end management investment 
companies (``Closed-End Fund Securities'') or (2) investment company 
units (``ETF Securities''), which, in each case, are registered under 
the Investment Company Act of 1940 (the ``1940 Act'') and listed on a 
national securities exchange. In addition, the Exchange proposes to 
amend NYSE Arca Equities Rule 5.2(j)(6)(B)(I) to provide for a limited 
exception, subject to certain proposed conditions, to one of the 
initial listing standards related to the eligibility of component 
securities comprising the index underlying Equity Index-Linked 
Securities. The text of the proposed rule change is available at the 
Exchange, the Commission's Public Reference Room, and http://www.nyse.com
.

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    \3\ NYSE Arca Equities Rule 5.2(j)(6) defines Equity Index-
Linked Securities as 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, also referred to as the 
``Equity Reference Asset.'' See NYSE Arca Equities Rule 5.2(j)(6).
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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
    The Exchange proposes to amend NYSE Arca Equities Rule 
5.2(j)(6)(B)(I) to permit the listing and trading of Equity Index-
Linked Securities where the underlying index consists in whole or in 
part of Closed-End Fund Securities or ETF Securities, which, in each 
case, are registered under the 1940 Act and are listed on national 
securities exchange. NYSE Arca Equities Rule 5.2(j)(6)(B)(I) currently 
permits the Exchange to list and trade, pursuant to Rule 19b-4(e) under 
the Act,\4\ Equity Index-Linked Securities if, among other 
requirements, all component securities included in the underlying index 
are either: (1) Securities (other than foreign country securities and 
American Depository Receipts (``ADRs'')) that are (a) issued by a 
reporting company under the Act that is listed on a national securities 
exchange and (b) an ``NMS stock,'' as defined in Rule 600 of Regulation 
NMS;\5\ or (2) foreign country securities or ADRs, subject to certain 
limitations. The Exchange proposes to amend Rule 5.2(j)(6)(B)(I) to 
include Closed-End Fund Securities and ETF Securities that are NMS 
stocks listed on national securities exchanges as components, in whole 
or in part, in any index underlying an issuance of Equity Index-Linked 
Securities. The Exchange believes that trading in exchange-listed 
Closed-End Fund Securities and ETF Securities is subject to the same 
level of regulation as exchange-listed equity securities. In addition, 
Closed-End Fund Securities and ETF Securities trade on the same 
exchange platforms as equity securities registered under the Act and 
are subject to the same exchange trading rules as equity securities. As 
such, the Exchange believes that it is appropriate to permit their 
inclusion as components of indexes underlying Equity Index-Linked 
Securities.
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    \4\ See 17 CFR 240.19b-4(e). Rule 19b-4(e) 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, 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 
derivative securities product, and the SRO has a surveillance 
program for such product class.
    \5\ See 17 CFR 242.600(b)(47).
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    The Exchange also proposes to amend NYSE Arca Equities Rule 
5.2(j)(6)(B)(I)(1)(b)(v) to incorporate a limited exception to the 
requirement that 90% of the index's numerical value and at least 80% of 
the total number of component securities underlying an Equity Reference 
Asset must meet the then current criteria for standardized options 
trading set forth in NYSE Arca Rule 5.3. The Exchange proposes that an 
underlying index would not be subject to such requirement if (1) no 
underlying component security represents more than 10% of the dollar 
weight of such index and (ii) such index has a minimum of 20 component 
securities.
    All of the options exchanges apply the same criteria to securities 
underlying exchange-traded options.\6\ These criteria relate primarily 
to the distribution and trading volume of the securities underlying an 
option\7\ and, as such, the Exchange believes that such criteria are 
duplicative of the minimum market capitalization and trading volume 
requirements for securities underlying Equity Index-Linked Securities 
set forth in NYSE Arca Equities Rule 5.2(j)(6)(B)(I)(1)(b)(i) and (ii), 
respectively. The Exchange notes that the current requirement of NYSE 
Arca

[[Page 61928]]

Equities Rule 5.2(j)(6)(B)(I)(1)(b)(ii) that relates to minimum trading 
volume for each component security is more stringent than the trading 
volume requirement related to options trading.\8\ Notwithstanding the 
foregoing, while a significant number of listed equity securities meet 
the minimum market capitalization and trading volume requirements for 
components of equity indexes under NYSE Arca Equities Rule 5.2(j)(6), 
the Exchange represents that many do not meet the current criteria for 
standardized options trading. The Exchange believes that the explicit 
market capitalization and trading volume requirements of NYSE Arca 
Equities Rule 5.2(j)(6)(B)(I)(1)(b)(i) and (ii), respectively, are 
sufficient to ensure that any component security comprising an Equity 
Reference Asset underlying a series of Equity Index-Linked Securities 
will have an adequate liquid trading market. In addition, the Exchange 
believes that, by requiring that both proposed conditions to NYSE Arca 
Equities Rule 5.2(j)(6)(B)(I)(1)(b)(v) (i.e., enhancing concentration 
limits for component securities and increasing the minimum number of 
component securities) be met in order to avail of the proposed 
exemption to such rule, the proposal would significantly reduce the 
possibility of manipulation of the index. Based on the foregoing, the 
Exchange believes that the protection of requiring such securities to 
be qualified for options trading is unnecessary.
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    \6\ See, e.g., Rule 1009 of the Philadelphia Stock Exchange, 
Inc.; Rule 5.3 of the Chicago Board Options Exchange, Incorporated; 
Rule 5.3 of NYSE Arca; and Rule 502 of the International Securities 
Exchange, LLC.
    \7\ The rules generally require a minimum of 7,000,000 publicly-
held shares, 2,000 holders, a trading volume of at least 2,400,000 
shares in the preceding 12 months, and a market price per share of 
the underlying security of at least $3.00 per share for securities 
that are ``covered securities,'' as defined in Section 18(b)(1) of 
the Securities Act of 1933 (15 U.S.C. 77r(b)(1)), and a market price 
per share of the underlying security of at least $7.50 for 
securities that are not ``covered securities.''
    \8\ NYSE Arca Equities Rule 5.2(j)(6)(B)(I)(1)(b)(ii) requires 
that each component security must have trading volume in each of the 
last six months or not less than 1,000,000 shares per month, except 
that for each of the lowest dollar weighted component securities in 
the index that, in the aggregate, account for no more than 10% of 
the dollar weight of the index, the trading volume shall be at least 
500,000 shares per month in each of the last six months. In 
contrast, the options criteria for underlying securities generally 
require a minimum trading volume (in all markets in which the 
underlying security is traded) of 2,400,000 shares in the preceding 
twelve months, as stated above.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\10\ in particular, in that it 
is 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed rule change will impose no 
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 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 NYSE Arca 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-2007-110 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-2007-110. 
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-2007-110 and should 
be submitted on or before November 23, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
Nancy M. Morris,
Secretary.
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    \11\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E7-21454 Filed 10-31-07; 8:45 am]

BILLING CODE 8011-01-P