Document ID: SEC-2009-0175-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2009-02-06T05:00Z

[Federal Register: February 6, 2009 (Volume 74, Number 24)]
[Notices]               
[Page 6338-6339]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06fe09-94]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59332; File No. SR-NYSEArca-2008-136]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving 
Proposed Rule Change Amending NYSE Arca Equities Rule 5.2(j)(6) 
Relating to the Initial Listing Standards for Equity Index-Linked 
Securities, Commodity-Linked Securities, Currency-Linked Securities, 
Fixed Income Index-Linked Securities, Futures-Linked Securities and 
Multifactor Index-Linked Securities

January 30, 2009.

I. Introduction

    On December 10, 2008, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend NYSE Arca Equities Rule 5.2(j)(6), which 
sets forth listing standards for Equity Index-Linked Securities, 
Commodity-Linked Securities, Currency-Linked Securities, Fixed Income 
Index-Linked Securities, Futures-Linked Securities and Multifactor 
Index-Linked Securities (``Index-Linked Securities''). The proposed 
rule change was published in the Federal Register on December 31, 
2008.\3\ The Commission received no comments on 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 Securities Exchange Act Release No. 59146 (December 22, 
2008), 73 FR 80504.
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II. Description of the Proposal

    The Exchange proposes to amend one of the requirements of NYSE Arca 
Equities Rule 5.2(j)(6), which sets forth the listing standards for 
Index-Linked Securities. Rule 5.2(j)(6) permits the Exchange to 
consider for listing and trading Index-Linked Securities pursuant to 
Rule 19b-4(e) under the Act, provided that, among other things, in no 
event will a loss or negative payment at maturity be accelerated by a 
multiple that exceeds twice the performance of an underlying Reference 
Asset. The Exchange proposes to amend Rule 5.2(j)(6)(A)(d) to provide 
that in no event will a loss or negative payment at maturity be 
accelerated by a multiple that exceeds three times the performance of 
an underlying Reference Asset. The Exchange proposes this change to 
allow it to list and trade Index-Linked Securities that employ

[[Page 6339]]

investment strategies similar or analogous to certain exchange-traded 
funds which list and trade on the Exchange pursuant to NYSE Arca 
Equities Rule 5.2(j)(3).\4\ Currently, exchange-traded funds are able 
to seek daily investment results, before fees and expenses, that 
correspond to three times the inverse or opposite of the daily 
performance (-300%) of the underlying indexes.
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    \4\ See Securities Exchange Act Release No. 58825 (October 21, 
2008), 73 FR 63756 (October 27, 2008) (SR-NYSEArca-2008-89).
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    For Index-Linked Securities that are structured to allow a loss or 
negative payment at maturity that may be accelerated by a multiple that 
exceeds three times the performance of an underlying Reference Asset, 
the Exchange's proposal would continue to require specific Commission 
approval pursuant to Section 19(b)(2) of the Act.\5\ In particular, 
NYSE Arca Equities Rule 5.2(j)(6) would expressly prohibit such Index-
Linked Securities from being approved by the Exchange for listing and 
trading pursuant to Rule 19b-4(e) under the Act.\6\
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    \5\ 15 U.S.C. 78s(b)(2). See e-mail dated January 29, 2009 from 
Tim Malinowski, Director, NYSE Euronext to Mitra Mehr, Special 
Counsel, Division of Trading and Markets, Commission (``NYSE Arca e-
mail'').
    \6\ 17 CFR 240.19b-4(e). See NYSE Arca e-mail.
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III. Discussion and Commission's Findings

    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, in 
particular, with Section 6(b) of the Act \7\ and the rules and 
regulations thereunder. Specifically, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\8\ which 
requires, among other things, that the Exchange's rules be designed 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.\9\
    The Commission believes that the proposal reasonably balances the 
removal of impediments to a free and open market with the protection of 
investors and the public interest, two principles set forth in Section 
6(b)(5) of the Act.\10\ The Commission notes that it has previously 
approved a proposed rule change that would permit the Exchange to list 
and trade, pursuant to Rule 19b-4(e) under the Act, exchange-traded 
funds that seek daily investment results, before fees and expenses, 
that correspond to three times the inverse or opposite of the daily 
performance (-300%) of the underlying indexes.\11\ With respect to the 
listing and trading of Index-Linked Securities that would allow a loss 
or negative payment at maturity that is accelerated by a multiple that 
exceeds three times the performance of an underlying Reference Asset, 
the Commission further notes that the Exchange would be required to 
obtain prior Commission approval pursuant to Section 19(b)(2) of the 
Act.\12\
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ In approving the 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).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ See supra note 4.
    \12\ 15 U.S.C. 78s(b)(2).
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    The Commission also notes that Index-Linked Securities must comply 
with all of the applicable provisions under NYSE Arca Equities Rule 
5.2(j)(6), as proposed to be amended, and all other requirements 
applicable to Index-Linked Securities including, without limitation, 
requirements relating to initial and continued listing standards, the 
dissemination of index value and related information, rules and 
policies governing the trading of equity securities, trading hours, 
trading halts, surveillance, firewalls, and Information Bulletins to 
ETP Holders, as set forth in prior Commission orders approving the 
generic listing rules applicable to the listing and trading of Index-
Linked Securities.
    The Commission also notes that NYSE Arca Equities Rule 9.2(a), 
which sets forth the Exchange's suitability requirements, would apply 
to the trading of Index-Linked Securities. Specifically, before 
recommending a transaction to a non-institutional customer in such 
securities, ETP Holders must have reasonable grounds to believe that 
the recommendation is suitable for the customer, based on facts 
disclosed by the customer after reasonable inquiry concerning the 
customer's investment objectives, financial situation, needs, and any 
other information that such ETP Holder believes would be useful to make 
a recommendation. ETP Holders must also have a reasonable basis to 
believe that the customer can evaluate the special characteristics, and 
is able to bear the financial risks, of investments in Index-Linked 
Securities. An Information Bulletin would inform ETP Holders of the 
suitability requirements of NYSE Arca Equities Rule 9.2(a) prior to the 
commencement of trading in such securities.
    In sum, the Commission believes that the Exchange's amendment to 
NYSE Arca Equities Rule 5.2(j)(6) relating to the listing and trading 
of Index-Linked Securities should fulfill the intended objective of 
Rule 19b-4(e) under the Act by allowing such derivative securities 
products to be listed and traded without separate Commission approval. 
The Commission believes that the proposed rule change should facilitate 
the listing and trading of additional types of Index-Linked Securities 
and reduce the time frame for bringing these securities to market.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act.\13\
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    \13\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NYSEArca-2008-136) be, and 
it hereby is, approved.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-2529 Filed 2-5-09; 8:45 am]

BILLING CODE 8011-01-P