[Federal Register: May 22, 2008 (Volume 73, Number 100)]
[Notices]
[Page 29793-29796]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22my08-91]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57818; File No. SR-Amex-2008-30]
Self-Regulatory Organizations; American Stock Exchange LLC; Order
Granting Approval of Proposed Rule Change, as Modified by Amendment No.
1 Thereto, To Amend the Eligibility Criteria for Components of an Index
or Portfolio Underlying Portfolio Depositary Receipts and Index Fund
Shares
May 15, 2008.
I. Introduction
On March 25, 2008, the American Stock Exchange LLC (``Amex'' 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 Commentary .03 to Amex Rule 1000-AEMI
(Portfolio Receipts or ``PDRs'') and Commentary .02 to Amex Rule 1000A-
AEMI (Index Fund Shares or ``IFSs,'' and together with PDRs,
collectively, ``ETFs'') to modify certain eligibility criteria for
components of an index or portfolio underlying ETFs. On April 1, 2008,
the Exchange filed Amendment No. 1 to the proposed rule change. The
proposed rule change was published for comment in the Federal Register
on April 14, 2008.\3\ The Commission received no comments on the
proposed rule change. This order
[[Page 29794]]
approves the proposed rule change, as modified by Amendment No. 1
thereto.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 57631 (April 8,
2008), 73 FR 20074.
---------------------------------------------------------------------------
II. Description of the Proposal
The Exchange proposes to amend Commentary .03 to Amex Rule 1000-
AEMI and Commentary .02 to Amex Rule 1000A-AEMI to exclude ETFs and
securities defined as Managed Fund Shares (Amex Rule 1000B), Trust
Issued Receipts (Amex Rule 1200), Commodity-Based Trust Shares (Amex
Rule 1200A), Currency Trust Shares (Amex Rule 1200B), Partnership Units
(Amex Rule 1500), and Paired Trust Shares (Amex Rule 1600) (together
with ETFs, collectively, ``Derivative Securities Products'') when
applying certain quantitative listing requirements of Commentary .03 to
Amex Rule 1000-AEMI and Commentary .02 to Amex Rule 1000A-AEMI. In this
way, the Exchange seeks to enable the listing and trading of ETFs that
are linked to, or based on, components that are Derivative Securities
Products pursuant to Rule 19b-4(e) under the Act.\4\
---------------------------------------------------------------------------
\4\ Rule 19b-4(e) under the Act provides that the listing and
trading of a new derivative securities product by a self-regulatory
organization (``SRO'') shall not be deemed a proposed rule change,
pursuant to Rule 19b-4(c)(1) (17 CFR 240.19b-4(c)(1)), if the
Commission has approved, pursuant to Section 19(b) of the Act (15
U.S.C. 78s(b)), the SRO's trading rules, procedures, and listing
standards for the product class that would include the new
derivatives securities product, and the SRO has a surveillance
program for the product class. See 17 CFR 240.19b-4(e).
---------------------------------------------------------------------------
Amex Rules 1000-AEMI and 1000A-AEMI provide that the Exchange may
approve a series of PDRs and IFSs, respectively, for listing and/or
trading (including pursuant to unlisted trading privileges) pursuant to
Rule 19b-4(e) under the Act,\5\ if such series satisfies the criteria
set forth in such Rules. In its proposal, the Exchange seeks to exclude
Derivative Securities Products when applying certain quantitative
listing requirements of Commentary .03 to Amex Rule 1000-AEMI and
Commentary .02 to Amex Rule 1000A-AEMI relating to the listing of PDRs
and IFSs, respectively, based on a U.S. index or portfolio or an
international or global index or portfolio.
---------------------------------------------------------------------------
\5\ See id.
---------------------------------------------------------------------------
With respect to Commentary .03 to Amex Rule 1000-AEMI and
Commentary .02 to Amex Rule 1000A-AEMI, the Exchange proposes to
exclude Derivative Securities Products, as components, when applying
the following existing component eligibility requirements: (1)
Component stocks that, in the aggregate, account for at least 90% of
the weight of the index or portfolio each must have a minimum market
value of at least $75 million (Commentary .03(a)(A)(1) to Amex Rule
1000-AEMI and Commentary .02(a)(A)(1) to Amex Rule 1000A-AEMI); (2)
component stocks that, in the aggregate, account for at least 90% of
the weight of the index or portfolio each must have a minimum monthly
trading volume during each of the last six months of at least 250,000
shares (Commentary .03(a)(A)(2) to Amex Rule 1000-AEMI and Commentary
.02(a)(A)(2) to Amex Rule 1000A-AEMI); and (3) the most heavily
weighted component stock must not exceed 30% of the weight of the index
or portfolio, and the five most heavily weighted component stocks must
not exceed 65% of the weight of the index or portfolio (Commentary
.03(a)(A)(3) to Amex Rule 1000-AEMI and Commentary .02(a)(A)(3) to Amex
Rule 1000A-AEMI). Component stocks, in the aggregate, excluding
Derivative Securities Products, would still be required to meet the
criteria of these provisions. Thus, for example, when determining
compliance with Commentaries .03(a)(A)(1) and (2) to Amex Rule 1000-
AEMI and Commentaries .02(a)(A)(1) and (2) to Amex Rule 1000A-AEMI,
component stocks that, in the aggregate, account for at least 90% of
the remaining index weight, after excluding any Derivative Securities
Products, would be required to have a minimum market value of at least
$75 million and minimum monthly trading volume of 250,000 shares during
each of the last six months, respectively. In addition, with respect to
Commentary .03(a)(A)(3) to Amex Rule 1000-AEMI and Commentary
.02(a)(A)(3) to Amex Rule 1000A-AEMI, when determining the component
weight for the most heavily weighted stock and the five most heavily
weighted component stocks for an underlying index that includes a
Derivative Securities Product, the weight of such Derivative Securities
Products included in the underlying index or portfolio would not be
considered.
In addition, the Exchange proposes to modify the requirements in
Commentary .03(a)(A)(4) to Amex Rule 1000-AEMI and Commentary
.02(a)(A)(4) to Amex Rule 1000A-AEMI, which provide that the underlying
index or portfolio must include a minimum of 13 component stocks.
Specifically, the Exchange proposes that there shall be no minimum
number of component stocks if: (1) One or more series of ETFs
constitute, at least in part, components underlying a series of ETFs;
or (2) one or more series of Derivative Securities Products account for
100% of the weight of the index or portfolio. Thus, for example, if the
index or portfolio underlying a series of ETFs includes one or more
series of ETFs, or if it consists entirely of other Derivative
Securities Products, then there would not be required to be any minimum
number of component stocks (i.e., one or more components comprising the
underlying index or portfolio would be acceptable). However, if the
index or portfolio consists of Derivative Securities Products other
than ETFs (e.g., Commodity-Based Trust Shares or Currency Trust
Shares), as well as securities that are not Derivative Securities
Products (e.g., common stocks), then there would have to be at least 13
components in the underlying index or portfolio.
Consistent with current Commentary .03(a)(A)(5) to Amex Rule 1000-
AEMI and Commentary .02(a)(A)(5) to Amex Rule 1000A-AEMI, all
securities in the index or portfolio would have to be ``US Component
Stocks'' (as defined in Amex Rules 1000-AEMI(b)(3) and 1000A-
AEMI(b)(4)) \6\ listed on a national securities exchange and NMS
Stocks, as defined in Rule 600 of under the Act.\7\
---------------------------------------------------------------------------
\6\ ``US Component Stock'' is an equity security that is
registered under Section 12(b) or 12(g) of the Act or an American
Depositary Receipt, the underlying equity security of which is
registered under Section 12(b) or 12(g) of the Act. See Amex Rules
1000-AEMI(b)(3) and 1000A-AEMI(b)(4).
\7\ See 17 CFR 242.600(b)(47).
---------------------------------------------------------------------------
With respect to Commentary .03(a)(B) to Amex Rule 1000-AEMI and
Commentary .02(a)(B) to Amex Rule 1000A-AEMI, the Exchange proposes to
exclude Derivative Securities Products, as components, when applying
the following existing component eligibility requirements: (1)
Component stocks that, in the aggregate, account for at least 90% of
the weight of the index or portfolio each must have a minimum market
value of at least $100 million (Commentary .03(a)(B)(1) to Amex Rule
1000-AEMI and Commentary .02(a)(B)(1) to Amex Rule 1000A-AEMI); (2)
component stocks that, in the aggregate, account for at least 90% of
the weight of the index or portfolio each must have a minimum worldwide
monthly trading volume during each of the last six months of at least
250,000 shares (Commentary .03(a)(B)(2) to Amex Rule 1000-AEMI and
Commentary .02(a)(B)(2) to Amex Rule 1000A-AEMI); and (3) the most
heavily weighted component stock must not exceed 25% of the weight of
the index or portfolio, and the five most heavily weighted component
stocks must not exceed 60% of the weight of the index or portfolio
(Commentary .03(a)(B)(3) to
[[Page 29795]]
Amex Rule 1000-AEMI and Commentary .02(a)(B)(3) to Amex Rule 1000A-
AEMI). Thus, for example, when determining compliance with Commentaries
.03(a)(B)(1) and (2) to Amex Rule 1000-AEMI and Commentaries
.02(a)(B)(1) and (2) to Amex Rule 1000A-AEMI, component stocks that, in
the aggregate, account for at least 90% of the remaining index weight,
after excluding any Derivative Securities Products, would be required
to have a minimum market value of at least $100 million and minimum
worldwide monthly trading volume of 250,000 shares during each of the
last six months, respectively. In addition, with respect to Commentary
.03(a)(B)(3) to Amex Rule 1000-AEMI and Commentary .02(a)(B)(3) to Amex
Rule 1000A-AEMI, when determining the component weight for the most
heavily weighted stock and the five most heavily weighted component
stocks for an underlying index that includes a Derivative Securities
Product, the weight of such Derivative Securities Products included in
the underlying index or portfolio would not be considered.
In addition, the Exchange proposes to modify the requirements in
Commentary .03(a)(B)(4) to Amex Rule 1000-AEMI and Commentary
.02(a)(B)(4) to Amex Rule 1000A-AEMI, which provide that the underlying
index or portfolio must include a minimum of 20 component stocks.
Specifically, the Exchange proposes that there shall be no minimum
number of component stocks if: (1) One or more series of ETFs
constitute, at least in part, components underlying a series of ETFs;
or (2) one or more series of Derivative Securities Products account for
100% of the weight of the index or portfolio. Thus, for example, if the
index or portfolio underlying a series of ETFs includes one or more
series of ETFs, or if it consists entirely of other Derivative
Securities Products, then there would not be required to be any minimum
number of component stocks (i.e., one or more components comprising the
underlying index or portfolio would be acceptable). However, if the
index or portfolio consists of Derivative Securities Products other
than ETFs (e.g., Commodity-Based Trust Shares or Currency Trust
Shares), as well as securities that are not Derivative Securities
Products (e.g., common stocks), then there would have to be at least 20
components in the underlying index or portfolio.
Consistent with current Commentary .03(a)(B)(5) to Amex Rule 1000-
AEMI and Commentary .02(a)(B)(5) to Amex Rule 1000A-AEMI, each
component that is a U.S. Component Stock (which would include each
Derivative Securities Product) would be required to be listed on a
national securities exchange and be an NMS Stock, as defined in Rule
600 under the Act, and each component that is a Non-US Component Stock
(as defined in Amex Rules 1000-AEMI(b)(4) and 1000A-AEMI(b)(5)) \8\
would be required to be listed and traded on an exchange that has last-
sale reporting.
---------------------------------------------------------------------------
\8\ ``Non-US Component Stock'' is an equity security that is not
registered under Section 12(b) or 12(g) of the Act and that is
issued by an entity that (1) is not organized, domiciled, or
incorporated in the United States, and (2) is an operating company
(including Real Estate Investment Trusts and income trusts, but
excluding investment trusts, unit trusts, mutual funds, and
derivatives). See Amex Rules 1000-AEMI(b)(4) and 1000A-AEMI(b)(5).
---------------------------------------------------------------------------
III. Discussion and Commission's Findings
After careful review and based on the Exchange's representations,
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.\9\ In particular, the
Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\10\ which requires, among other things,
that the rules of an exchange be designed to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
protect investors and the public interest.
---------------------------------------------------------------------------
\9\ In approving this proposed rule change, the Commission notes
that it 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).
---------------------------------------------------------------------------
Under Commentary .03 to Amex Rule 1000-AEMI and Commentary .02 to
Amex Rule 1000A-AEMI, one or more series of Derivative Securities
Products may be included as a component comprising the index or
portfolio underlying a series of ETFs.\11\ The Commission notes that,
based on the trading characteristics of Derivative Securities Products,
it may be difficult for component Derivative Securities Products to
satisfy certain quantitative index criteria, such as the minimum market
value and trading volume limitations. However, because Derivative
Securities Products are themselves subject to specific initial and
continued listing requirements, the Commission believes that it would
be reasonable to exclude Derivative Securities Products, as components,
when applying certain quantitative listing requirements related to the
listing of PDRs and IFSs. For example, the index component eligibility
standards for ETFs require, among others, that there be a minimum of 13
component stocks in an underlying U.S. index or portfolio and a minimum
of 20 component stocks in an international or global index or
portfolio. If one or more series of ETFs constitutes, at least in part,
a component of a U.S. or international index underlying a series of
ETFs, the Commission believes that not requiring a minimum number of
components underlying such overlying ETFs would be reasonable because
each component ETF already requires a minimum of 13 or 20 component
stocks, as the case may be. In addition, if the index or portfolio
underlying a series of ETFs consists entirely of other component
Derivative Securities Products, then there would be no required minimum
number of component stocks. The Commission notes that, if a series of
ETFs is based on the performance of an underlying index or portfolio
composed, in part, of: (1) An ETF and another non-Derivative Securities
Product (e.g., common stock), or (2) a Derivative Securities Product
other than an ETF, then the minimum number of component stock
requirement will continue to apply.
---------------------------------------------------------------------------
\11\ Under Commentary .03 to Amex Rule 1000-AEMI and Commentary
.02 to Amex Rule 1000A-AEMI, a series of a Derivative Securities
Product may be included as a U.S. Component Stock or Non-U.S.
Component Stock underlying a series of PDRs or IFSs, respectively,
so long as the shares of such series meet the definitions of U.S.
Component Stock and Non-U.S. Component Stock, as applicable. See
supra notes 6 and 8. See also Commentaries .03(a)(A)(5) and
.03(a)(B)(5) to Amex Rule 1000-AEMI and Commentaries .02(a)(A)(5)
and .02(a)(B)(5) to Amex Rule 1000A-AEMI (requiring that, in any
event, all securities in the applicable index or portfolio must be a
U.S. Component Stock listed on a national securities exchange and an
NMS Stock, as defined in Rule 600 under the Act, or, in the case of
an international or global index or portfolio, must be a Non-U.S.
Component Stock that is listed and traded on an exchange that has
last-sale reporting).
---------------------------------------------------------------------------
In addition, because component Derivative Securities Products may
comprise 100% of the weight of any index underlying a series of ETFs,
the Commission believes that providing for an exception to the
concentration limits contained in Commentary .03(a)(A)(3) to Amex Rule
1000-AEMI and Commentary .02(a)(A)(3) to Amex Rule 1000A-AEMI with
respect to component Derivative Securities Products is reasonable. The
Commission further notes that component Derivative
[[Page 29796]]
Securities Products that are U.S. Component Stocks comprising, at least
in part, an index or portfolio underlying a series of Units must meet
the definition of NMS Stock \12\ and already have been listed and
trading on a national securities exchange pursuant to a proposed rule
change approved by the Commission pursuant to Section 19(b)(2) of the
Act \13\ or submitted by a national securities exchange pursuant to
Section 19(b)(3)(A) of the Act,\14\ or would have been listed by a
national securities exchange pursuant to the requirements of Rule 19b-
4(e) under the Act.\15\ Component Derivative Securities Products that
are Non-U.S. Component Stocks comprising, at least in part, an
international or global index or portfolio underlying a series of Units
must already have been listed and trading on an exchange that has last-
sale reporting.
---------------------------------------------------------------------------
\12\ See supra note 7.
\13\ 15 U.S.C. 78s(b)(2).
\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ See supra note 4.
---------------------------------------------------------------------------
The Commission believes that the proposed rule change will
facilitate the listing and trading of additional types of exchange-
traded products that will enhance competition among market
participants, to the benefit of investors and the marketplace. In
addition, the listing and trading criteria set forth in the proposal
are intended to protect investors and the public interest. The
Commission notes that it has approved a substantively identical
proposal of another national securities exchange.\16\ The Commission is
not aware of any regulatory issue that should cause it revisit that
finding and, as such, believes it is reasonable and consistent with the
Act for the Exchange to modify the index component eligibility criteria
for ETFs in the manner described in the proposal.
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 57751 (May 1,
2008), 73 FR 25818 (May 7, 2008) (SR-NYSEArca-2008-29).
---------------------------------------------------------------------------
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\17\ that the proposed rule change (SR-Amex-2008-30), as modified
by Amendment No. 1 thereto, be, and it hereby is, approved.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
Florence E. Harmon,
Deputy Secretary.
---------------------------------------------------------------------------
\18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
[FR Doc. E8-11424 Filed 5-21-08; 8:45 am]
BILLING CODE 8010-01-P