[Federal Register: March 5, 2007 (Volume 72, Number 42)]
[Notices]
[Page 9820-9822]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05mr07-96]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55339; File No. SR-NYSEArca-2007-14]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change to Amend Existing Rules for Investment Company
Units
February 23, 2007.
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 February 8, 2007, NYSE Arca, Inc. (``NYSE Arca'' or ``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, II
and III below, which Items have been substantially prepared by the
Exchange. The Commission is publishing this notice and order to solicit
comment 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
NYSE Arca, proposes to modify its listing standards applicable to
Investment Company Units (``Investment Company Units'' or ``ICUs'') by
amending Commentary .01(b)(1) to NYSE Arca Equities Rule 5.2(j)(3) to
eliminate the requirement that the calculation methodology for the
index underlying a series of ICUs must be one of those enumerated in
the commentary. The text of the proposed rule change is available at
NYSE Arca, the Commission's Public Reference Room, and http://www.nysearca.com/regulation/filings.asp
.
[[Page 9821]]
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 proposes to eliminate the requirement that the
prescribed calculation methodology for the index underlying a series of
ICUs must be one of those enumerated in Commentary .01(b)(1) of Rule
5.2(j)(3). The proposed rule change is based on proposed rule changes
of both the American Stock Exchange and New York Stock Exchange.\3\
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\3\ See Securities Exchange Act Release No. 55240 (February 5,
2007), 72 FR 06624 (Februrary 12, 2007). See also SR-NYSE-2007-12
(submitted to the Commission).
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The Exchange has adopted listing standards applicable to ICUs which
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.\4\ An
Investment Company Unit is defined in NYSE Arca Equities Rule
5.1(b)(15) as a security representing 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.\5\
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\4\ In October 1999, the Commission approved NYSE Arca Equities
Rule 5.2(j)(3), which sets forth the rules related to listing and
trading criteria for Investment Company Units. See Securities
Exchange Act Release No. 41983 (October 6, 1999), 64 FR 56008
(October 15, 1999) (SR-PCX-1998-29). In July 2001, the Commission
also approved the Exchange's generic listing standards for listing
and trading, or the trading pursuant to UTP, of Investment Company
Units under NYSE Arca Equities Rule 5.2(j)(3). See Securities
Exchange Act Release No. 44551 (July 12, 2001), 66 FR 37716 (July
19, 2001) (SR-PCX-2001-14).
\5\ 15 U.S.C. 80a.
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The ``generic'' listing criteria of Commentary .01 to Rule
5.2(j)(3) permits listing or trading pursuant to UTP of ICUs that
satisfy such criteria in reliance upon Rule 19b-4(e) under the Act,\6\
without a separate filing. Commentary .01(b)(1) to Rule 5.2(j)(3)
currently requires that where a series of ICUs approved for trading
(including pursuant to UTP) on the Exchange in reliance upon Rule 19b-
4(e) of the Act, the index underlying the series of ICUs must be
calculated based on either the market capitalization, modified market
capitalization, price, equal-dollar or modified equal-dollar weighting
methodology or a methodology weighting components of the index based on
any, some or all of the following: Sales, cash flow, book value, and
dividends.\7\
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\6\ 17 CFR 240.19b-4(e).
\7\ See Securities Exchange Act Release No. 54490 (September 22,
2006), 71 FR 58034 (October 2, 2006) (SR-NYSEArca-2006-61)
(approving underlying index weightings for: sales, cash flow, book
value and dividends).
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The Exchange proposes to delete Commentary .01(b)(1) to Rule
5.2(j)(3) and thereby eliminate the calculation methodology limitation.
In recent years, academics and market professionals have explored
and defined a growing list of innovations in index construction. Most
recently, the Commission approved amendments to the generic listing
criteria to accommodate new index weighting methodologies based on
ranking companies by financial data such as sales, cash flow, book
value and dividends.\8\ The Exchange believes there are multiple ways
for indexes to be constructed to serve useful market purposes.
Additional methodologies are under active development by academics and
market professionals and permitting only certain specified index
weighting methods does not take into account the rapid innovation in
this area. The Exchange believes that, with respect to ICUs listed
pursuant to Rule 19b-4(e) under the Act, applying the numerical
weighting and liquidity criteria and index dissemination requirements
set forth in the remainder of Commentary .01 to Rule 5.2(j)(3), without
imposing constraints on the index methodology, will provide greater
flexibility to indexers and ICU issuers to develop indexes that meet
the investment objectives of investors. In addition, the proposed rule
change would allow ICUs based on a non-traditional weighting
methodology to be brought to market more quickly, thereby reducing
burdens on ICU issuers and other market participants and promoting
competition.
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\8\ See Securities Exchange Act Release No. 54649 (October 24,
2006); 71 FR 63816 (October 31, 2006) (SR-NYSE-2006-88).
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The Exchange notes that the numerical criteria in Commentary .01
already define the concentration limits, diversity requirements and
liquidity requirements of the companies in the underlying index. For
example, the generic listing standards for domestic indexes require,
among other things, that an index include at least 13 stocks, that the
most heavily weighted component stock of an index cannot exceed 30% of
the index or portfolio weight, and the five most heavily weighted
component stocks of an index cannot exceed 65% of the index or
portfolio weight. ICUs and their underlying indexes would continue to
be subject to all other requirements of Rule 5.2(j)(3) and Commentary
.01. Under these circumstances, the Exchange believes that removal of
the index weighting requirements of Commentary .01(b)(1) will not
compromise investor protection.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \9\ of the
Act, in general, and furthers the objectives of Section 6(b)(5) \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.
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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. 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
[[Page 9822]]
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 self-
regulatory organization consents, the Commission will:
(A) By order approve the proposed modifications, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
The Exchange has requested accelerated approval of this proposed
rule change. The Commission has determined that a 15-day comment period
is appropriate in this case.
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 rules-comments@sec.gov. Please include
File No. SR-NYSEArca-2007-14 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 No. SR-NYSEArca-2007-14. 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 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 No. SR-NYSEArca-2007-14 and should be submitted on or before March
20, 2007.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-3739 Filed 3-2-07; 8:45 am]
BILLING CODE 8010-01-P