[Federal Register: April 1, 2008 (Volume 73, Number 63)]
[Notices]
[Page 17390-17392]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01ap08-88]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57561; File No. SR-NYSEArca-2008-29]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change and Amendment No. 1 Thereto To Amend the
Eligibility Criteria for Components of an Index Underlying Investment
Company Units
March 26, 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 March 13, 2008, 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. On March 24, 2008, the Exchange filed Amendment No. 1 to the
proposed rule change. The Commission is publishing this notice to
solicit comments on the proposed rule change, as amended, 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
The Exchange proposes to amend Commentary .01 to NYSE Arca Equities
Rule 5.2(j)(3) to modify the eligibility criteria for components of an
index underlying Investment Company Units (``Units'').\3\ The text of
the proposed rule change is available at the Exchange, the Commission's
Public Reference Room, and www.nyse.com.
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\3\ Units are securities that represent 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, that holds securities comprising, or otherwise based
on or representing an interest in, an index or portfolio of
securities or securities in another registered investment company
that holds securities. See NYSE Arca Equities 5.2(j)(3).
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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
Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3) provides that
NYSE Arca Equities may approve a series of Units for listing and/or
trading (including pursuant to unlisted trading privileges) pursuant to
Rule 19b-4(e) under the Act,\4\ if such series satisfies the criteria
set forth in Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3). The
Exchange proposes to exclude Units and certain other securities defined
in Section 2 of NYSE Arca Equities Rule 8 (collectively, ``Derivative
Securities Products'') \5\ when applying the quantitative listing
requirements of Commentary .01(a)(A) and (B) of NYSE Arca Equities Rule
5.2(j)(3) relating to the listing of Units based on a U.S. index or
portfolio or an international or global index or portfolio,
respectively.
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\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) under the Act (17 CFR 240.19b-4(c)(1)),
if the Commission has approved, pursuant to Section 19(b) of the
Act, 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).
\5\ The following securities are included in Section 2 of NYSE
Arca Equities Rule 8: Portfolio Depositary Receipts (Rule 8.100);
Trust Issued Receipts (Rule 8.200); Commodity-Based Trust Shares
(Rule 8.201); Currency Trust Shares (Rule 8.202); Commodity Index
Trust Shares (Rule 8.203); Partnership Units (Rule 8.300); and
Paired Trust Shares (Rule 8.400). The Exchange has also proposed to
adopt new NYSE Arca Equities Rule 8.600 (Managed Fund Shares). See
Securities Exchange Act Release No. 57395 (February 28, 2008), 73 FR
11974 (March 5, 2008) (SR-NYSEArca-2008-25) (proposing, among other
things, to adopt listing standards for Managed Fund Shares).
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With respect to Commentary .01(a)(A) to NYSE Arca Equities Rule
5.2(j)(3), 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
.01(a)(A)(1)); (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 .01(a)(A)(2)); 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 .01(a)(A)(3)). 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 .01(a)(A)(1) and (2) to NYSE
Arca Equities Rule 5.2(j)(3), 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 .01(a)(A)(3) to NYSE Arca Equities
Rule 5.2(j)(3), when determining the component weight for the most
heavily weighted stock and the
[[Page 17391]]
five most heavily weighted component stocks for an underlying index
that includes a Derivative Securities Product, the weight of such
Derivative Securities Product included in the underlying index or
portfolio would not be considered.
In addition, the Exchange proposes to modify the requirement in
Commentary .01(a)(A)(4) to NYSE Arca Equities Rule 5.2(j)(3), which
requires that the underlying index or portfolio 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
Units or Portfolio Depositary Receipts (as defined in NYSE Arca
Equities Rule 8.100) constitute, at least in part, components
underlying a series of Units; 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 Units includes one or more series of Units or Portfolio
Depositary Receipts, 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 Units or Portfolio Depositary Receipts, and other 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 .01(a)(A)(5) to NYSE Arca
Equities Rule 5.2(j)(3), all securities in the index or portfolio
(including Derivative Securities Products) must nevertheless be U.S.
Component Stocks that are listed on a national securities exchange and
NMS Stocks, as defined in Rule 600 under the Act.\6\
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\6\ See 17 CFR 242.600(b)(47).
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With respect to Commentary .01(a)(B) to NYSE Arca Equities Rule
5.2(j)(3), 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
.01(a)(B)(1)); (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 .01(a)(B)(2)); 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 .01(a)(B)(3)). Thus, for example, when
determining compliance with Commentaries .01(a)(B)(1) and (2) to NYSE
Arca Equities Rule 5.2(j)(3), 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 .01(a)(B)(3) to
NYSE Arca Equities Rule 5.2(j)(3), 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
Product included in the underlying index or portfolio would not be
considered.
In addition, the Exchange proposes to modify the requirement in
Commentary .01(a)(B)(4) to NYSE Arca Equities 5.2(j)(3), which requires
that the underlying index or portfolio 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
Units or Portfolio Depositary Receipts (as defined in NYSE Arca
Equities Rule 8.100) constitute, at least in part, components
underlying a series of Units, 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 Units includes one or more series of Units or Portfolio
Depositary Receipts, 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 Units or Portfolio Depositary Receipts, and other 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 .01(a)(B)(5) to NYSE Arca
Equities Rule 5.2(j)(3), each component that is a U.S. Component Stock
(including Derivative Securities Products) 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-
U.S. Component Stock (including Derivative Securities Products) would
be required to be listed and traded on an exchange that has last-sale
reporting.
The Exchange believes it is appropriate to exclude Derivative
Securities Products from certain index component eligibility criteria
for Units in so far as such Derivative Securities Products are
themselves subject to specific quantitative listing and continued
listing requirements of a national securities exchange on which such
Derivative Securities Products are listed. Derivative Securities
Products that are components of an index or portfolio underlying a
series of Units would have been listed and traded on a national
securities exchange pursuant to a proposed rule change approved by the
Commission pursuant to Section 19(b)(2) of the Act \7\ or submitted by
a national securities exchange pursuant to Section 19(b)(3)(A) of the
Act,\8\ or would have been listed by a national securities exchange
pursuant to the requirements of Rule 19b-4(e) under the Act.\9\
Finally, the Exchange notes that Derivative Securities Products are
derivatively priced, and, therefore, the Exchange believes that it
would not be necessary to apply the generic quantitative criteria
(e.g., market capitalization, trading volume, index or portfolio
component weighting) applicable to non-Derivative Securities Products
(e.g., common stocks) to such products.
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\7\ 15 U.S.C. 78s(b)(2).
\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ See supra note 4.
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2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) of the Act,\10\ which states that an
exchange have rules that are designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market, and, in general, to protect investors and
the public interest. The Exchange believes that the proposed rule
change
[[Page 17392]]
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.
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\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
The Exchange states that it has neither solicited nor received
comments on the proposed rule change.
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 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 Exchange consents, the Commission will:
A. By order approve such proposed rule change, or
B. Institute proceedings to determine whether the proposed rule
change should be disapproved.
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 rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2008-29 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-2008-29. 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, 100 F Street,
NE., Washington, DC 20549, on official business days between the hours
of 10 a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office 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-2008-29 and should
be submitted on or before April 22, 2008.
For the Commission, by the Division of Trading and Markets,
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. E8-6657 Filed 3-31-08; 8:45 am]
BILLING CODE 8011-01-P