Document ID: SEC-2006-1404-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2006-10-31T05:00Z

[Federal Register: October 31, 2006 (Volume 71, Number 210)]
[Notices]               
[Page 63816-63818]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31oc06-99]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54649; File No. SR-NYSE-2006-88]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change Relating to NYSE Listed Company Manual Section 703.16 
(Investment Company Units)

 October 24, 2006.
    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 20, 2006, the New York Stock Exchange LLC (``Exchange'' or 
``NYSE'') 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 and order to solicit comments on 
the proposed rule change from interested persons and to approve 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.
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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 Section 703.16(B)(4)(a) of the 
NYSE Listed Company Manual (``Manual''). The text of the proposed rule 
change is available on NYSE's Web site at (http://www.nyse.com), at the 

principal office of NYSE, and at the Commission's Public Reference 
Room.

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 has adopted listing standards applicable to Investment 
Company Units (``ICUs'' or ``Investment Company Units'') that are 
consistent with the listing criteria currently used by other national 
securities exchanges and trading standards pursuant to which the 
Exchange may either list and trade ICUs or trade such ICUs on the 
Exchange on an unlisted trading privileges (``UTP'') basis.\3\ An ICU 
is defined in Section 703.16 of the Manual as a security that 
represents an interest in a registered investment company that could be 
organized as a unit investment trust, an open-end management investment 
company, or a similar entity. A registered investment company is 
registered under the Investment Company Act of 1940.\4\
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    \3\ In 1996, the Commission approved Section 703.16 of the 
Manual, which sets forth the rules related to the listing of ICUs. 
See Securities Exchange Act Release No. 36923 (March 5, 1996), 61 FR 
10410 (March 13, 1996) (SR-NYSE-95-23). In 2000, the Commission also 
approved the Exchange's generic listing standards for listing and 
trading, or the trading pursuant to UTP, of ICUs under Section 
703.16 of the Manual and Exchange Rule 1100. See Securities Exchange 
Act Release No. 43679 (December 5, 2000), 65 FR 77949 (December 13, 
2000) (SR-NYSE-00-46).
    \4\ 15 U.S.C. 80a.
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    The ``generic'' listing criteria of Section 703.16 of the Manual 
permit listing of ICU's that satisfy such criteria in reliance upon 
Rule 19b-4(e) under the Act,\5\ without a filing pursuant to Rule 19b-4 
under the Act. Section 703.16(B)(4)(a) of the Manual requires, among 
other criteria that, if a series of ICUs is listed for trading on the 
Exchange in reliance upon Rule 19b-4(e) under the Act, the index 
underlying the series must be calculated based on either the market 
capitalization, modified market capitalization, price, equal-dollar, or 
modified equal-dollar weighting methodology.
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    \5\ 17 CFR 240.19b-4(e).
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    According to the Exchange, the proposed rule change will specify 
one additional methodology. The Exchange proposes to amend Section 
703.16(B)(4)(a) of the Manual to permit a series of ICUs to be listed 
under the generic listing standards pursuant to Rule 19b-4(e) under the 
Act,\6\ if the underlying index for such series is weighted based on 
any, some or all of the following: Sales, cash flow, book

[[Page 63817]]

value and dividends (``fundamentals weighted indexes'').\7\
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    \6\ Id.
    \7\ In each instance, the index methodology will set forth the 
means for calculating sales, cash flow, book value and dividends.
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    ``Sales'' refers to the total of reported operating revenues less 
various adjustments to gross sales, such as returns, discounts, 
allowances, excise taxes, insurance charges, sales taxes and value 
added taxes. In calculating the sales value, an index provider may opt 
to average the company's applicable figures for several prior years 
(e.g., five prior years as reflected in the company's Annual Report on 
Form 10-K).
    ``Cash Flow'' refers to operating income plus depreciation. For 
example, a manufacturer typically reports its operating income as its 
net sales plus other operating income minus cost of goods sold and 
selling, general and administrative expenses. Depreciation expense for 
a manufacturer typically includes the depreciation that is directly 
related to or associated with tangible fixed assets and includes 
amortization of fixed assets that are part of plant, property and 
equipment such as leased assets, leasehold improvements and internal 
use software. For example, for a manufacturer, depreciation expense 
excludes amortization of intangible assets. For banks, financial 
companies and REITs, operating income refers to their total operating 
revenue minus total operating expenses. For REITs, depreciation expense 
includes depreciation relating to real estate property and includes 
corporate fixed asset depreciation if not separated from property 
depreciation. In calculating cash flow, an index provider may opt to 
average the company's applicable figures for several prior years (e.g., 
five prior years as reflected in the company's Annual Report on Form 
10-K).
    ``Book Value'' refers to a company's book value at the index review 
date. In accordance with accounting principles, book value generally 
means total common equity, which is derived from adding share capital 
and additional paid-in capital to retained earnings. In calculating 
book value, an index provider may opt to average the company's 
applicable figures for several prior years (e.g., five prior years as 
reflected in the company's Annual Report on Form 10-K).
    ``Dividends'' refers to total dividend distributions, including 
both special and regular dividends paid in cash. Generally, the total 
dividend amount that is declared to all classes of common shareholders 
includes regular cash, as well as special cash dividends, and excludes 
returns of capital and in-specie dividends. In calculating dividends, 
an index provider may opt to average the company's applicable figures 
for several prior years (e.g., five prior years as reflected in the 
company's Annual Report on Form 10-K).
    The Exchange believes that the fundamentals weighting methodology 
is a transparent methodology that is appropriately included in the ICU 
generic listing criteria (which encompass exchange-traded funds) as an 
alternative to traditional weighting techniques. According to the 
Exchange, fundamental indexing provides an investor with additional 
choices in selecting exchange-traded funds whose underlying index 
emphasizes financial factors that the investor may believe are 
important. The NYSE notes that products based on indexes using this 
methodology are already subject to the other requirements of the 
generic listing standards pursuant to Rule 19b-4(e) under the Act.\8\
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    \8\ 17 CFR 240.19b-4(e).
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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 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. 
The Exchange believes the proposed rule change should facilitate 
listing and trading of ICUs that rely on an index using a fundamentals 
weighting methodology and should thereby remove the burdens on issuers 
and other market participants.
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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 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

    Written comments on the proposed rule change were neither solicited 
nor received.

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 e-mail to rule-comments@sec.gov. Please include File 

Number SR-NYSE-2006-88 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-NYSE-2006-88. 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. Copies of such 
filing will also be available for inspection and copying at the 
principal office of the NYSE. 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-NYSE-2006-88 and should be submitted on or before 
November 21, 2006.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful review, 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

[[Page 63818]]

securities exchange.\11\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\12\ 
which requires, among other things, that the rules of a national 
securities exchange 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, and to remove impediments to 
and perfect the mechanism for a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest.
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    \11\ In approving this 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).
    \12\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change amends the Exchange's existing generic 
listing standards pursuant to Rule 19b-4(e) under the Act \13\ for ICUs 
to provide that an eligible index may be calculated following the 
``fundamentals weighted'' or ``fundamental index'' methodology. This 
index calculation methodology weights components based on one or more 
of the following: sales, cash flow, book value, and dividends.\14\
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    \13\ 17 CFR 240.19b-4(e).
    \14\ According to the Exchange, in each instance, the index 
methodology will set forth the means of calculating sales, cash 
flow, book value, and dividends and thus will be transparent.
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    Including this index calculation methodology in the Exchange's 
generic listing standards will provide investors with more investment 
choices by offering an alternative to the other index methodologies, 
such as capitalization-weighted indexes. The Commission notes that the 
indexes that would be based on the fundamentals weighting methodology 
will already be subject to the requirements of the generic listing 
standards pursuant to Rule 19b-4(e) under the Act,\15\ including 
trading volume and liquidity requirements. In addition, by amending its 
generic listing standards pursuant to Rule 19b-4(e) under the Act,\16\ 
the Exchange should reduce the time frame for listing or trading ICUs 
that rely on an index utilizing a fundamentals weighting methodology. 
The proposed rule change should therefore facilitate the listing or 
trading of such securities and thereby reduce the burdens on issuers 
and other market participants.
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    \15\ 17 CFR 240.19b-4(e).
    \16\ Id.
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    The Exchange has requested accelerated approval of the proposed 
rule change. The Commission finds good cause for approving the proposed 
rule change prior to the 30th day after the date of publication of the 
notice of filing in the Federal Register. The Commission believes the 
proposed rule change should provide investors with an alternative to 
the current index calculation methodologies. The proposed rule change 
is substantially identical to that approved for another exchange.\17\ 
The Commission does not believe that the proposed rule change raises 
any novel regulatory issues. Therefore, the Commission finds good 
cause, consistent with Section 19(b)(2) of the Act,\18\ to approve the 
proposed rule change on an accelerated basis.\19\
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    \17\ See Securities Exchange Act Release No. 54459 (September 
15, 2006), 71 FR 55533 (September 22, 2006) (SR-NASDAQ-2006-035). 
See also Securities Exchange Act Release No. 54490 (September 22, 
2006), 71 FR 58034 (October 2, 2006) (SR-NYSEArca-2006-61).
    \18\ 15 U.S.C. 78s(b)(2).
    \19\ The Commission's approval order is not retroactive in 
effect.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-NYSE-2006-88) is approved on 
an accelerated basis.
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    \20\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-18254 Filed 10-30-06; 8:45 am]

BILLING CODE 8011-01-P