Document ID: SEC-2008-0184-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2008-02-05T05:00Z

[Federal Register: February 5, 2008 (Volume 73, Number 24)]
[Notices]               
[Page 6762-6764]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05fe08-100]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57226; File No. SR-NYSEArca-2008-03]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Order Granting Accelerated Approval of Proposed Rule Change, 
Relating to Rules 5.3 and 5.4 To Enable Listing and Trading of Options 
on Multiple Fund and Inverse Fund Shares

January 29, 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 January 8, 2008, NYSE Arca, Inc. (the ``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 and 
II below, which Items have been substantially prepared by the Exchange. 
The Commission hereby provides notice of filing of the proposed rule 
change and approves 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 revise NYSE Arca Rules 5.3 and 5.4 to 
enable listing and trading on the Exchange of options on Multiple Fund 
Shares and Inverse 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 III 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 
Rules 5.3 and 5.4 to enable the listing and trading on the Exchange of 
options on Multiple Fund Shares \3\ and Inverse Fund Shares.\4\ 
Multiple and Inverse Fund Shares differ from traditional exchange-
traded fund shares (``Exchange-Traded Fund Shares'' or ``Fund Shares'') 
in that they do not merely correspond to the performance of a given 
index, but rather attempt to match a multiple or inverse of such 
underlying index performance. Currently, Multiple Fund Shares issued by 
ProShares Trust and Rydex ETF Trust trade on the Exchange pursuant to 
unlisted trading privileges (``UTP'') under NYSE Arca Equities Rule 
5.2(j)(3).\5\
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    \3\ Multiple Fund Shares seek to provide investment results, 
before fees and expenses, that correspond to a specific multiple of 
the percentage performance on a given day of a particular foreign or 
domestic stock index.
    \4\ Inverse Fund Shares seek to provide investment results, 
before fees and expenses, that correspond to the inverse (opposite) 
of the percentage performance on a given day of a particular foreign 
or domestic stock index by a specified multiple.
    \5\ See Securities Exchange Act Release Nos. 56763 (November 7, 
2007), 72 FR 94103 (November 14, 2007) (SR-NYSEArca-2007-81); 56601 
(October 2, 2007), 72 FR 57625 (October 10, 2007) (SR-NYSEArca-2007-
79); 55125 (January 18, 2007), 72 FR 3462 (January 25, 2007) (SR-
NYSEArca-2006-87); 54026 (June 21, 2006), 71 FR 36850 (June 28, 
2006) (SR-PCX-2005-115).
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    In order to achieve investment results that provide either a 
positive multiple or inverse of the benchmark index, Multiple Fund 
Shares or Inverse Fund Shares may hold a combination of financial 
instruments, including among other things: stock index future 
contracts; options on futures; options on securities and indices; 
equity caps, collars and floors; swap agreements; forward contracts; 
repurchase agreements; and reverse repurchase agreements (the 
``Financial Instruments''). The underlying portfolios of Multiple Fund 
Shares generally will hold at least 85% of their assets in the 
component securities of the underlying relevant benchmark index. The 
remainder of any assets is devoted to Financial Instruments that are 
intended to create the additional needed exposure to such underlying 
index necessary to pursue its investment objective. Normally, 100% of 
the value of the underlying portfolios of Inverse Fund Shares will be 
devoted to Financial Instruments and money market instruments, 
including U.S. government securities and repurchase agreements (the 
``Money Market Instruments''). Currently, NYSE Arca Rule 5.3(g) 
provides securities deemed appropriate for options trading shall 
include shares or other securities that are traded on a national 
securities exchange and are defined as an ``NMS Stock'' under Rule 600 
of Regulation NMS, and that (i) represent an interest in a registered 
investment company organized as an open-end management investment 
company, a unit investment trust or a similar entity which holds 
securities constituting or otherwise based on or representing an 
investment in an index or portfolio of securities, or (ii) represent 
interests in a trust or similar entity that holds a specified non-U.S. 
currency deposited with the trust or a similar entity 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 interest and other distributions on the deposited 
U.S. currency, if any, declared and paid by the trust; or (iii) 
represent commodity pool interests principally engaged, directly or 
indirectly, in holding and/or

[[Page 6763]]

managing portfolios or baskets of securities, commodity futures 
contracts, options on commodity futures contracts, swaps, forward 
contracts and/or options on physical commodities and/or non-U.S. 
currency (``Commodity Pool Units'').
    The Exchange proposes to amend Rule 5.3(g) to expand the type of 
options eligible for listing and trading to include options based on 
Multiple Fund Shares and Inverse Fund Shares that may hold or invest in 
any combination of securities, Financial Instruments and/or Money 
Market Instruments. Multiple Fund Shares and Inverse Fund Shares will 
continue to otherwise satisfy the listing standards in Rule 5.3(g). In 
addition, the Exchange proposes minor amendments to Rule 5.3(g)(1)(B).
    As set forth in proposed NYSE Arca Rule 5.3(g), Multiple Fund 
Shares and Inverse Fund Shares must be traded on a national securities 
exchange and must be an ``NMS stock'' as defined under Rule 600 of 
Regulation NMS. In addition, Multiple Fund Shares and Inverse Fund 
Shares must meet either: (i) The criteria and guidelines for underlying 
securities set forth in Rule 5.3(a) and (b); or (ii) be available for 
creation or redemption each business day in cash or in kind from or 
through the issuing trust, investment company, commodity pool or other 
issuer at a price related to the net asset value. In addition, the 
issuing trust, investment company, commodity pool, or other issuer is 
obligated to issue Fund Shares in a specified aggregate number even 
though some or all of the investment assets needed to be deposited have 
not been received by the issuing trust, investment company, commodity 
pool, or other issuer, provided the authorized creation participant has 
undertaken to deliver the investment assets as soon as possible and 
such undertaking has been secured by the delivery and maintenance of 
collateral consisting of cash or cash equivalents satisfactory to the 
issuer of the Fund Shares which underlie the option as described in the 
Fund Shares' prospectus; and (iii) for Commodity Pool Units, the 
Exchange has entered into a comprehensive surveillance sharing 
agreement with the marketplace or marketplaces with last sale reporting 
that represent(s) the highest volume in such 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.
    The current continuing or maintenance listing standards for options 
on Exchange Traded Fund Shares will continue to apply.
    The Exchange proposes to amend NYSE Arca Rule 5.4 to indicate that 
the index or portfolio may consist of securities, Financial Instruments 
and/or Money Market Instruments. Under the applicable continued listing 
criteria in Rule 5.4, options on Exchange-Traded Fund Shares may be 
subject to the suspension of opening transactions as follows: (1) Non-
compliance with Rule 5.4(k)(1)-(4); (2) following the initial 12-month 
period beginning upon the commencement of trading of the Exchange-
Traded Fund Shares, there are fewer than 50 record and/or beneficial 
holders of the Exchange-Traded Fund Shares for 30 or more consecutive 
days; (3) 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, options on physical commodities and/or Financial Instruments 
and Money Market Instruments on which the Exchange-Traded Fund Shares 
are based is no longer calculated or available; or (4) such other event 
shall occur or condition exist that in the opinion of the Exchange 
makes further dealing in such options on the Exchange inadvisable. 
Additionally, the Exchange-Traded Fund Shares will not be deemed to 
meet the requirement for continued approval, and the Exchange shall not 
open for trading any additional series of option contracts of the class 
covering such Multiple Fund Shares or Inverse Fund Shares, if the Fund 
Shares are halted from trading on their primary market or if the Fund 
Shares are delisted in accordance with the terms of NYSE Arca Rule 
5.4(k).
    The Exchange represents that the expansion of the types of 
investments that may be held by Multiple Fund Shares or Inverse Fund 
Shares under Rule 5.3(g) will not have any effect on the rules 
pertaining to position and exercise limits \6\ or margin.\7\
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    \6\ See NYSE Arca Rules 5.49 and 6.9.
    \7\ See NYSE Arca Rule 5.25.
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    The Exchange represents that its existing surveillance procedures 
applicable to trading in options are adequate to properly monitor the 
trading in Multiple Fund Shares options and Inverse Fund Shares 
Options.
2. Statutory Basis
    The proposal is consistent with Section 6(b) of the Act,\8\ in 
general, and Section 6(b)(5) of the Act,\9\ 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purpose of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
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-2008-03 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-2008-03. 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

[[Page 6764]]

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 such filing also will be available for 
inspection and copying at the principal offices 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-2008-03 and should 
be submitted on or before February 26, 2008.

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 securities 
exchange.\10\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\11\ which 
requires that an exchange have rules designed, among other things, to 
promote just and equitable principles of trade, 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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    \10\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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Surveillance

    The Commission notes that the Exchange has represented that its 
existing surveillance procedures applicable to trading options are 
adequate to properly monitor trading in Multiple Fund Shares options 
and Inverse Fund Shares options. In addition, the Exchange represented 
that the expansion of the types of investments that may be held by 
Multiple Fund Shares or Inverse Fund Shares under NYSE Arca Rules 
5.3(g) and 5.4 will not have any effect on the rules pertaining to 
position and exercise limits \12\ or margin.\13\
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    \12\ See NYSE Arca Rules 5.49 and 6.9.
    \13\ See NYSE Arca Rule 5.25.
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Listing and Trading Options on Fund Shares

    The Commission notes that, pursuant to the proposed rule change, 
the Exchange represented that the current continuing or maintenance 
listing standards for options on Exchange Traded Fund Shares will 
continue to apply. These provisions include requirements regarding 
initial and continued listing standards, suspension of opening 
transactions, and trading halts. Proposed amended NYSE Arca Rule 
5.3(g), would require that Multiple Fund Shares and Inverse Fund Shares 
be traded on a national securities exchange and must be an ``NMS 
stock'' as defined under Rule 600 of Regulation NMS.\14\
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    \14\ 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 Multiple Fund Shares and 
Inverse Fund Shares such as those currently issued by ProShares Trust 
and Rydex ETF Trust that trade on the Exchange pursuant to unlisted 
trading privileges under NYSE Arca Equities Rule 5.2(j)(3).\15\ The 
Commission believes that the ability to trade options on the Multiple 
and Inverse Fund Shares will provide investors with additional risk 
management tools. The Commission further believes that the proposed 
amendment to the Exchange's listing criteria for options on Exchange 
Traded Fund Shares will ensure that the Exchange will be able to list 
options on the Funds of the ProShares Trust and Rydex ETF Trust as well 
as other Multiple Fund Shares or Inverse Fund Shares that may be 
introduced in the future, thereby affording investors greater 
investment choices.
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    \15\ See supra note 5.
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    The Commission finds good cause for approving this proposal before 
the 30th day after the publication of notice thereof in the Federal 
Register. The Commission notes that it has previously approved 
substantially similar proposals by other national securities 
exchanges.\16\ The Commission presently is not aware of any regulatory 
issue that should cause it to revisit those findings or would preclude 
the listing and trading of the options on Multiple Fund and Inverse 
Fund Shares on the Exchange. Accelerating approval of this proposed 
rule change would allow the options on Multiple Fund and Inverse Fund 
Shares to be listed on the Exchange without undue delay and 
continuously traded without interruption, to the benefit of investors.
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    \16\ See Securities Exchange Act Release Nos. 56871 (November 
30, 2007), 72 FR 68924 (December 6, 2007) (approving SR-ISE-2007-87 
on an accelerated basis); 56715 (October 29, 2007), 72 FR 62287 
(November 2, 2007) (approving SR-CBOE-2007-119 on an accelerated 
basis); 56650 (October 12, 2007), 72 FR 59123 (October 18, 2007) 
(SR-Amex-2007-35).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-NYSEArca-2008-03) be, and it 
hereby is, approved on an accelerated basis.
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    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-1986 Filed 2-4-08; 8:45 am]

BILLING CODE 8011-01-P