Document ID: SEC-2008-1047-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2008-07-28T04:00Z

[Federal Register: July 28, 2008 (Volume 73, Number 145)]
[Notices]               
[Page 43812-43813]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28jy08-123]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58203; File No. SR-NYSEArca-2008-57]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of a Proposed Rule Change Amending NYSE Arca Rule 5.3 and Rule 
5.4 To Enable the Listing and Trading of Options on Index-Linked 
Securities

July 22, 2008.
    On May 29, 2008, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 \2\ thereunder to 
amend NYSE Arca Rules 5.3 and 5.4 to list and trade options on equity 
index-linked securities, commodity-linked securities, currency-linked 
securities, fixed income index-linked securities, futures-linked 
securities, and multifactor index-linked securities (collectively 
referred to as ``Index-Linked Securities'') \3\ that are principally 
traded on a national securities exchange and an ``NMS stock'' as 
defined in Rule 600 of Regulation NMS.\4\ The proposed rule change was 
published for comment in the Federal Register on June 18, 2008 for a 
21-day comment period.\5\ The Commission received no comment letters 
regarding the proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See NYSE Arca Equities Rule 5.2(j)(6).
    \4\ See 17 CFR 242.600(b)(47).
    \5\ See Securities Exchange Act Release No. 57950 (June 11, 
2008), 73 FR 34815.
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    Index-Linked Securities are designed for investors who desire to 
participate in a specific market segment by providing exposure to one 
or more identifiable underlying securities, commodities, currencies, 
derivative instruments or

[[Page 43813]]

market indexes of the foregoing. Index-Linked Securities are the non-
convertible debt of an issuer that have a term of at least one year but 
not greater than thirty years. Despite the fact that Index-Linked 
Securities are linked to at least one underlying index or asset 
(``Reference Asset''), each trade as a single, exchange-listed 
security. Accordingly, rules pertaining to the listing and trading of 
standard equity options would apply to options on Index-Linked 
Securities.
    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 \6\ and, in particular, the requirements of Section 6 of the 
Act.\7\ Specifically, the Commission finds that the proposed rule 
change is consistent with Section 6(b)(5) of the Act,\8\ 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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    \6\ 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).
    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
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Listing and Trading of Options on Index-Linked Securities

    As set out more fully in the Exchange's notice of its proposal, 
NYSE Arca's proposed rules include requirements regarding initial and 
continued listing standards, the creation/redemption process for Index-
Linked Securities, and trading halts. Index-Linked Securities 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.\9\
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    \9\ 17 CFR 242.600(b)(47).
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    The Commission notes that, pursuant to the proposed NYSE Arca Rules 
5.3(j)(3) and 5.4(m), Index-Linked Securities will be subject to the 
initial and continuing eligibility standards for underlying securities 
provided in NYSE Arca Rules 5.3 and 5.4, as applicable. In particular, 
to be options eligible, an Index-Linked Security must either meet the 
criteria and guidelines for underlying securities set forth in NYSE 
Arca Rule 5.3(a), or alternately, the Index-Linked Securities must be 
redeemable at the option of the holder at least on a weekly basis 
through the issuer at a price related to the applicable underlying 
Reference Asset, and the issuing company must be obligated to issue or 
repurchase the securities in aggregation units for cash or cash 
equivalents satisfactory to the issuer of Index-Linked Securities which 
underlie the option as described in the Index-Linked Securities 
prospectus.
    To continue to be options eligible, the Index-Linked Security must 
remain an NMS stock listed on a national securities exchange. The 
Exchange will also consider the suspension of opening transactions in 
any series of options of the class covering Index-Linked Securities 
where the Index-Linked Security does not satisfy the requirements set 
out in proposed NYSE Arca Rule 5.4(m). These include: (1) Continued 
compliance with NYSE Arca Rule 5.3(j); (2) compliance with NYSE Arca 
5.4(b) or, for options covering Index-Linked Securities approved 
pursuant to NYSE Arca Rule 5.3(j)(3)(B), continuing to be an NMS stock 
listed on a national securities exchange; and (3) the value of the 
underlying Reference Asset continues to be calculated and available. In 
addition, the Exchange retains discretion to suspend opening 
transactions in options on Index-Linked Securities where conditions 
make further dealings in such options inadvisable.
    The Exchange represented that the addition of options on Index-
Linked Securities will not have any effect on Exchange rules pertaining 
to position and exercise limits \10\ or margin.\11\
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    \10\ See NYSE Arca Rules 6.8 and 6.9.
    \11\ See NYSE Arca Rule 5.25.
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Surveillance

    The Commission notes that Exchange has represented that it will 
implement surveillance procedures for options on Index-Linked 
Securities, including adequate comprehensive surveillance sharing 
agreements with markets trading in non-U.S. components, as applicable. 
NYSE Arca further represented that these procedures will be adequate to 
properly monitor Exchange trading of options on Index-Linked Securities 
and to deter and detect violations of Exchange rules. This order is 
based on these representations.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-NYSEArca-2008-57) is hereby 
approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-17211 Filed 7-25-08; 8:45 am]

BILLING CODE 8010-01-P