Document ID: SEC-2007-0978-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NYSE Arca, Inc.
Posted Date: 2007-07-19T04:00Z

[Federal Register: July 19, 2007 (Volume 72, Number 138)]
[Notices]               
[Page 39654-39657]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19jy07-84]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56073; File No. SR-NYSEArca-2007-53]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Order Granting Accelerated Approval of a Proposed Rule Change 
Relating to Listing and Trading Options on Commodity Pool Units

July 13, 2007.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on June 12, 2007, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been substantially prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons and is approving the proposal on an 
accelerated basis.
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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 certain Exchange rules to permit the 
listing and trading of options on securities interest issued by trust 
issued receipts (``TIRs''), partnership units (``Partnership Units''), 
commodity based funds or trusts, and other entities (referred 
collectively herein as ``Commodity Pool Units''). The Exchange also 
proposes to make minor technical changes to the numbering of certain 
rules. The text of the proposed rule change is available at the 
Exchange, the Commission's Public Reference Room, and http://www.nysearca.com
.

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 NYSE Arca included 
statements concerning the purpose of and basis for

[[Page 39655]]

the proposed rule change. The text of these statements may be examined 
at the places specified in Item IV below. The NYSE Arca 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 NYSE Arca states that the proposed rule change is based on rule 
changes made by the American Stock Exchange LLC (``Amex'') pursuant to 
SR-Amex-2006-110.\3\
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    \3\ See Exchange Act Release No. 55547 (March 28, 2007), 72 FR 
16388 (April 4, 2007) (approval order for SR-Amex-2006-110).
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    The purpose of this proposed rule change is to enable the listing 
and trading on the Exchange of options on Commodity Pool Units that 
trade, directly or indirectly, in commodity futures products. Commodity 
Pool Units may hold or trade in one or more types of investments that 
may include any combination of securities, commodity futures contracts, 
options on commodity futures contracts, swaps and forward contracts. 
The shares of the Commodity Pool Units are securities registered with 
the Commission and the offer and sale of those shares are subject to 
the Commission's regulatory oversight. The investments held, directly 
or indirectly, within the Commodity Pool Units are subject to the 
Commodity Exchange Act (``CEA'') due to their status as a ``commodity 
pool.'' \4\ Therefore, the trading of the assets and/or investment 
(e.g., futures and options on futures) held within the Commodity Pool 
Units is regulated by the Commodity Futures Trading Commission 
(``CFTC'').\5\
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    \4\ The term ``[commodity] pool means any investment trust, 
syndicate or similar form of enterprise operated for the purpose of 
trading commodity interests.'' 17 CFR 4.10(d)(1). A commodity 
interest is ``(1) Any contract for the purchase or sale of a 
commodity for future delivery; and (2) Any contract, agreement or 
transaction subject to Commission regulation under section 4c or 19 
of the [Commodity Exchange] Act.'' 17 CFR 4.10(a).
    \5\ The manager or operator of a ``commodity pool'' is required 
to register, unless applicable exclusions apply, as a commodity pool 
operator (``CPO'') and as a commodity trading advisor (``CTA'') with 
the CFTC and become a member of the National Futures Association 
(``NFA'').
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    Currently, NYSE Arca Rule 5.3 provides that securities deemed 
appropriate for options trading shall include shares or other 
securities (``Units'') that are principally traded on a national 
securities exchange or through the facilities of a national securities 
association and reported as a NMS security, and that (i) represent 
interests in registered investment companies (or series thereof) 
organized as open-end management investment companies, unit investment 
trusts or similar entities that hold portfolios of securities 
comprising or otherwise based on or representing investments in indexes 
or portfolios of securities (or that hold securities in one or more 
other registered investment companies that themselves hold such 
portfolios of securities); or (ii) represent interests in a trust that 
holds a specified non-U.S. currency deposited with the trust when 
aggregated in some specified minimum number may be surrendered to the 
trust by the beneficial owner to receive the specified non-U.S. 
currency and pays the beneficial owner to receive the specified non-
U.S. currency and pays the beneficial owner interest and other 
distributions on deposited non-U.S. currency, if any, declared and paid 
by the trust.
    The Exchange proposes to amend Rule 5.3(g) to expand the type of 
options to include the listing and trading of options based on 
Commodity Pool Units that may hold or invest, directly or indirectly, 
in commodity futures products, including, but not limited to, commodity 
futures contracts, options on commodity futures contracts, swaps and 
forward contracts. As part of this revision to Rule 5.3(g), the 
Exchange proposes to add paragraph (1)(C) requiring for Commodity Pool 
Units that a comprehensive surveillance sharing agreement be in place 
with the marketplace or marketplaces with last sale reporting that 
represent(s) the highest volume in such commodity futures contracts 
and/or options on commodity futures contracts on the specified 
commodities or non-U.S. currency, which are utilized by the national 
securities exchange where the underlying Commodity Pool Units are 
listed and traded.\6\
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    \6\ For a list of the current members and affiliate members of 
ISG, see http://www.isgportal.com. The Exchange notes that not all 

of the underlying securities may trade on exchanges that are members 
or affiliate members of the ISG. In addition, the Exchange has 
surveillance information sharing agreements in place with the ICE 
Futures, Board of Trade of Kansas City, Missouri, Inc., The London 
Metal Exchange Limited, and New York Mercantile Exchange, Inc. 
(``NYMEX'').
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    As set forth in the proposed changes to Rule 5.3, Commodity Pool 
Units must be traded on a national securities exchange or through the 
facilities of a national securities association and must be an ``NMS 
stock'' as defined under Rule 600 of Regulation NMS. In addition, 
Commodity Pool Units must meet either: (i) The criteria and guidelines 
under Rule 5.3; or (ii) be available for creation or redemption each 
business day from or through the issuing trust, investment company, 
commodity pool or other issuer in cash or in kind at a price related to 
net asset value. In addition, the issuing trust, investment company, 
commodity pools or other issuer is obligated to issue Units in a 
specified aggregate number even if some or all of the investment assets 
required to be deposited have not been received by the issuing trust, 
investment company, commodity pool or other issuer, subject to the 
condition that the person obligated to deposit the investment assets 
has undertaken to deliver the investment assets as soon as possible and 
such undertaking is secured by the delivery and maintenance of 
collateral consisting of cash or cash equivalents satisfactory to the 
issuer of Units which underlie the option as described in the Units' 
prospectus.
    Under the applicable continued listing criteria presently contained 
in NYSE Arca Rule 5.6,\7\ the Exchange shall not open for trading an 
additional series of option contracts on Units that were initially 
approved for options trading pursuant to Rule 5.3 if such Units either: 
(i) Cease to be an ``NMS stock'' as provided in Rule 5.4 (an ``NMS 
stock'' is defined in Rule 600 of Regulation NMS of the Act); or (ii) 
are halted from trading in their primary market.
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    \7\ Pursuant to a technical change proposed in this filing, 
existing NYSE Arca Rule 5.6 will be re-numbered as Rule 5.4.
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    In addition, the Exchange shall consider the suspension of opening 
transactions in any series of options of the class covering Units in 
the following circumstances: (1) Following the initial 12-month period 
beginning upon the commencement of trading in the Units on a national 
securities exchange or through the facilities of a national securities 
association and are defined as an ``NMS stock'' under Rule 600 of 
Regulation NMS, there are fewer than 50 record and/or beneficial 
holders of such Units for 30 or more consecutive trading days; or (2) 
the value of the index or portfolio of securities, non-U.S. currency, 
or portfolio of commodities including commodity futures contracts, 
options on commodity futures contracts, swaps, forward contracts and/or 
options on physical commodities on which the Units are based is no 
longer calculated or available.
    The Exchange is also proposing to amend the Commentary to its Rule 
11.3 to require members to establish, maintain and enforce written 
policies and procedures to prevent the misuse of

[[Page 39656]]

material, nonpublic information it might have or receive in a related 
security, option or derivative or in the applicable related commodity, 
commodity futures, or options on commodity futures or any other related 
commodity derivatives.
    The Exchange is further proposing to amend Rule 6.39 to require 
that Market-Makers for options in Commodity Pool Units file with the 
Exchange upon request a list identifying all accounts for, among other 
things, physical commodities, physical commodity options, commodity 
futures contracts, options on commodity futures contracts, any other 
derivatives based on such commodity in which the Market-Maker may have 
directly or indirectly engaged in trading activities or over which he 
exercises investment discretion. The Exchange is proposing to add the 
phrase ``for options on'' in two places in Rule 6.39(a) to clarify that 
Rule 6.39(a) governs Market-Makers in options on Units (versus Market-
Markets in the Unit underlying the option). In addition, the proposed 
revision to Rule 6.39 further requires that no Market-Maker shall 
engage in trading in, among other things, physical commodities, 
physical commodity options, commodity futures contracts, options on 
commodity futures contracts, any other derivatives based on such 
commodity in an account which has not been reported in a manner 
prescribed by the Exchange. The Exchange is proposing to add the phrase 
``trading in'' to the last sentence of Rule 6.39(a) to clarify the 
conduct governed by the rule.
    In addition, the Exchange proposes to amend Rule 9.17 to require 
Market-Makers to make available to the Exchange such books and records 
or other information pertaining to transactions in the applicable 
physical commodity, physical commodity options, commodity futures 
contracts, options on commodity futures contracts, or any other 
derivatives on such commodity, as may be requested by the Exchange.
    The Exchange represents that it has an adequate surveillance 
program in place for options based on Commodity Pool Units. The 
Exchange may obtain trading information via the Intermarket 
Surveillance Group (``ISG'') from other exchanges who are members or 
affiliates of the ISG and has entered into numerous comprehensive 
surveillance-sharing agreements with various commodity futures 
exchanges worldwide.\8\ Prior to listing and trading options on 
Commodity Pool Units, the Exchange represents that it would either have 
the ability to obtain specific trading information via ISG or through a 
comprehensive surveillance sharing agreement with the primary exchange 
or exchanges where the particular commodity futures and/or options on 
commodity futures are traded.
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    \8\ See footnote 6, supra.
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    The addition of Commodity Pool Units would not have any effect on 
the rules pertaining to position and exercise limits.\9\ The Exchange 
also represents that the margin requirements for options on Commodity 
Pools Units would be evaluated for each product the Exchange 
anticipates listing. Any new margin rules deemed necessary will be 
filed separately with the Commission.
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    \9\ See NYSE Arca Rules 6.6 and 6.8.
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    This proposal is necessary to enable the Exchange to list and trade 
options on an expanding range of Commodity Pool Units that the 
Commission has previously approved for trading.\10\
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    \10\ See Exchange Act Release Nos. 53105 (January 11, 2006), 71 
FR 3129 (January 19, 2006) (approving the listing and trading of the 
DB Commodity Index Tracking Fund); 53582 (March 31, 2006), 71 FR 
17510 (April 6, 2006) (approving the listing and trading of Units of 
the United States Oil Fund, L.P.); and 54450 (September 14, 2006), 
71 FR 51245 (September 21, 2006) (approving the listing and trading 
of the PowerShares DB G10 Currency Harvest Fund).
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    The Exchange believes that it is reasonable to expect that other 
types of Commodity Pool Units will be introduced for trading in the 
near future. The proposed amendment to the Exchange's listing criteria 
for options on Commodity TIRs and Partnership Units is necessary to 
ensure that the Exchange will be able to list options on Commodity Pool 
Units that have been recently launched as well as any other similar 
Commodity Pool Units that may be listed and traded in the future.
    As part of this filing, the Exchange proposes correcting a 
typographical error in existing Rule 5.6(l).\11\ When the exchange 
originally proposed this rule, the word ``not'' was inadvertently 
omitted from the first sentence of the rule text. The Exchange now 
proposes to correct this omission.
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    \11\ Rule 5.6(l) will be renumbered as Rule 5.4(l) as part of 
this proposal.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of section 6(b) of the Act \12\ in general, and 
furthers the objectives of section 6(b)(5),\13\ of the Act 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 mechanism of a free and open 
market and a national market system.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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 no written comments were solicited or 
received with respect to the proposed rule change.

III. 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-2007-53 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-2007-53. 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

[[Page 39657]]

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 such 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-2007-53 and should be submitted on or August 9, 2007.

IV. Commission Findings and Accelerated Approval

    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 \14\ and, in particular, the requirements of section 6 of the 
Act.\15\ Specifically, the Commission finds that the proposed rule 
change is consistent with section 6(b)(5) of the Act,\16\ which 
requires, among other things, that the rules of a national securities 
exchange be designed 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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    \14\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78f.
    \16\ 15 U.S.C. 78f(b)(5).
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Surveillance

    The Commission notes that Exchange has represented that it has an 
adequate surveillance program in place for options based on Commodity 
Pool Units. The Exchange may obtain trading information via the 
Intermarket Surveillance Group (``ISG'') from other exchanges who are 
members or affiliates of the ISG and has entered into numerous 
comprehensive surveillance sharing agreements with various commodity 
futures exchanges worldwide. Prior to listing and trading options on 
Commodity Pool Units, the Exchange represented that it will either have 
the ability to obtain specific trading information via ISG or through a 
comprehensive surveillance sharing agreement with the exchange or 
exchanges where the particular commodity futures and/or options on 
commodity futures are traded. In addition, the Exchange represented 
that the addition of Commodity Pool Unit options will not have any 
effect on the rules pertaining to position and exercise limits \17\ or 
margin.
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    \17\ See NYSE Arca Rules 6.8 and 6.9.
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Listing and Trading of Options on Commodity Pool Units
    The Commission notes that, pursuant to the proposed rule change, a 
Commodity Pool Unit will be subject to the provisions of NYSE Arca Rule 
5.3 and 5.4, as applicable. These provisions include requirements 
regarding initial and continued listing standards, the creation/
redemption process for Commodity Pool Units, and trading halts. All 
Commodity Pool Units must be traded through a national securities 
exchange or through the facilities of a national securities 
association, and must be ``NMS stock'' as defined under Rule 600 of 
Regulation NMS.\18\
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    \18\ 17 CFR 242.600(b)(47).
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    The Commission believes that this proposal is necessary to enable 
the Exchange to list and trade options on an expanding range of 
Commodity Pool Units currently approved for trading and that it is 
reasonable to expect other types of Commodity Pool Units to be 
introduced for trading in the future. This proposal would help ensure 
that the Exchange will be able to list options on Commodity Pool Units 
that have been recently launched as well as any other similar Commodity 
Pool Units that may be listed and traded in the future \19\ thereby 
offering investors greater option choices.
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    \19\ 17 CFR 240.19b-4(e).
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    The Commission finds good cause, pursuant to section 19(b)(2) of 
the Act,\20\ for approving the proposed rule change, as amended, prior 
to the thirtieth day after the date of publication of notice in the 
Federal Register. The Commission notes that the proposal is consistent 
with the Exchange's listing and trading standards in NYSE Arca Rules 
5.3 and 5.4 and the Commission has recently approved a similar 
proposal, after publishing it for a full comment period and receiving 
no comments.\21\ The Commission does not believe that the proposed rule 
change, as amended, raises novel regulatory issues. Consequently, the 
Commission believes that it is appropriate to permit investors to 
benefit from the flexibility afforded by trading these products as soon 
as possible.
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    \20\ 15 U.S.C. 78s(b)(2).
    \21\ See Securities Exchange Act Release Nos. 55547 (March 28, 
2007), 72 FR 16388 (April 4, 2007) (SR-Amex-2006-110) (approval 
order); and 55187 (January 29, 2007), 72 FR 5467 (February 6, 2007) 
(SR-Amex-2006-110) (proposing release).
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    Accordingly, the Commission finds that there is good cause, 
consistent with section 6(b)(5) of the Act,\22\ to approve the 
proposal, as amended, on an accelerated basis.
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    \22\ 15 U.S.C. 78s(b)(5).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-NYSEArca-2007-53), as 
amended, be, and is hereby approved on an accelerated basis.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-13998 Filed 7-18-07; 8:45 am]

BILLING CODE 8010-01-P