Document ID: SEC-2008-1463-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2008-10-24T04:00Z

[Federal Register: October 24, 2008 (Volume 73, Number 207)]
[Notices]               
[Page 63534-63536]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24oc08-136]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58799; File No. SR-NYSEArca-2008-108]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Revising NYSE Arca Rule 5.3 To Enable the 
Listing and Trading of Options on Managed Fund Shares

October 16, 2008.
    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 9, 2008, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and

[[Page 63535]]

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.
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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 revise NYSE Arca Rule 5.3 to enable the 
listing and trading of options on Managed Fund Shares. The text of the 
proposed rule change is available at the Exchange, the Commission's 
Public Reference Room, and http://www.nyse.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 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 purpose of the proposed rule change is to revise NYSE Arca Rule 
5.3 to enable the listing and trading of options on managed fund shares 
(``Managed Fund Shares'') that are listed and traded on a national 
securities exchange and are considered to be an ``NMS Stock'' (as 
defined in Rule 600 of Regulation NMS under the Securities and Exchange 
Act of 1934 (the ``Act'')).
    Managed Fund Shares represent an interest in a registered 
investment company (``Investment Company'') organized as an open-end 
management investment company or similar entity. Unlike traditional 
exchange traded funds Managed Fund Shares are actively managed. Managed 
Fund Shares, although, based upon a publicly disclosed portfolio of 
securities, each trade as a single exchange-listed equity security.
    Accordingly, rules pertaining to the listing and trading of 
standard equity options will apply to Managed Fund Shares.
Listing Criteria
    The Exchange will consider listing and trading options on Managed 
Fund Shares provided the Managed Fund Shares meet (1) the criteria for 
underlying securities set forth in NYSE Arca Rule 5.3(a) \3\ -(b),\4\ 
or (2) the Managed Fund Shares are available for creation and 
redemption each business day as set forth in NYSE Arca Rule 
5.3(g)(1)(B). The Exchange proposes that Managed Fund Shares deemed 
appropriate for options trading represent an interest in an open-end 
management investment company or similar entity, as described below:
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    \3\ See NYSE Arca Rule 5.3(a) which sets forth minimum 
requirements for the underlying security which include, but are not 
limited to, 7,000,000 underlying shares, 2,000 shareholders, and 
trading volume of 2,400,000 shares over the preceding twelve months.
    \4\ See NYSE Arca Rule 5.3(b) which states that the underlying 
securities shall be registered and be an ``NMS Stock'' as defined in 
Rule 600 of Regulation NMS under the Act.
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    Managed Fund Shares are securities that represents an interest in a 
registered investment company (``Investment Company'') organized as an 
open-end management investment company or similar entity, that invests 
in a portfolio of securities selected by the Investment Company's 
investment adviser consistent with the Investment Company's investment 
objectives and policies, which is issued in a specified aggregate 
minimum number in return for a deposit of a specified portfolio of 
securities and/or a cash amount with a value equal to the next 
determined net asset value (``NAV''), and when aggregated in the same 
specified minimum number, may be redeemed at a holder's request, which 
holder will be paid a specified portfolio of securities and/or cash 
with a value equal to the next determined NAV.
    For the purposes of NYSE Arca Rule 5.3(g)(v), Managed Fund Shares 
are a class of exchange-traded fund shares that are actively managed as 
defined in NYSE Arca Equities Rule 8.600.\5\
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    \5\ See NYSE Arca Equities Rule 8.600 and Securities and 
Exchange Release No. 57619 (April 4, 2008), 73 FR 19544 (April 10, 
2008) (SR-NYSEArca-2008-25) approving rules permitting the listing 
and trading of Managed Fund Shares.
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Continued Listing Requirements
    Options on Managed Fund Shares will be subject to all Exchange 
rules governing the trading of equity options and furthermore, the 
rules pertaining to position and exercise limits \6\ or margin \7\ 
shall apply. The current continuing or maintenance listing standards 
for options traded on NYSE Arca will continue to apply.
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    \6\ Pursuant to NYSE Arca Rule 6.8, Commentary .05 and .06, 
Managed Fund Shares are subject to the same position limits 
applicable to options on stocks and Exchange-Traded Fund Shares. 
NYSE Arca Rule 6.9 stipulates that exercise limits for options on 
stocks and other securities, including Managed Fund Shares, shall be 
the same as the position limits applicable under NYSE Arca Rule 6.8.
    \7\ See NYSE Arca Rules 4.15(a)-4.16(d), the Exchange's rules 
governing margin.
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    The Exchange will utilize its existing surveillance procedures 
applicable to options on exchange traded funds (which will include 
Managed Fund Shares) to monitor trading. In addition, the Exchange will 
implement any new surveillance procedures it deems necessary to 
effectively monitor the trading of options on Managed Fund Shares, 
including adequate comprehensive surveillance sharing agreements 
(``CSSA'') with markets trading in non-U.S. components,\8\ as 
applicable. Also, the Exchange may obtain trading information via the 
Intermarket Surveillance Group (``ISG'') \9\ from other exchanges who 
are members or affiliates of the ISG. NYSE Arca represents that these 
procedures will be adequate to properly monitor Exchange trading of 
options on these the securities and to deter and detect violations of 
Exchange rules.
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    \8\ See NYSE Arca Rule 5.3(g)(2), the Exchange's rule governing 
the applicable CSSA requirements for options on exchange-traded 
funds. We note that any non-U.S. component securities (including 
fixed-income) in an index or portfolio of securities on which the 
Fund Shares are based that are not subject to comprehensive 
surveillance agreements may in the aggregate represent an amount 
equal to 50% of the weight of the index or portfolio.
    \9\ A complete list of the current members of the ISG, is 
available at http://www.isgportal.org.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \10\ of the Securities Exchange Act of 1934 (``Act'') 
in general, and furthers the objectives of Section 6(b)(5) of the Act 
\11\ 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, and, in general, to protect 
investors and the public interest. The Exchange believes that the 
proposed rules applicable to trading pursuant to generic listing and 
trading criteria, together with the Exchange's surveillance procedures 
applicable to trading in the securities covered by the proposed rules, 
serve to foster investor protection.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).

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[[Page 63536]]

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

    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 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-2008-108 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-NYSEArca-2008-108. 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-2008-108 and should 
be submitted on or before November 14, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-25372 Filed 10-23-08; 8:45 am]

BILLING CODE 8011-01-P