[Federal Register: June 19, 2006 (Volume 71, Number 117)]
[Notices]
[Page 35317-35318]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19jn06-98]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53971; File No. SR-NYSEArca-2006-22]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Order Granting Accelerated Approval of a Proposed Rule Change
Relating to Increasing the Maximum Weighting of Certain Component
Stocks in Indexes or Portfolios Underlying Investment Company Units
June 12, 2006.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on May 22, 2006, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') the proposed rule change as described in
Items I and II below, which Items have been prepared by NYSE Arca. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons, and is approving the
proposal 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, through its wholly owned subsidiary NYSE Arca
Equities, Inc. (``NYSE Arca Equities''), proposes to amend its rules
governing NYSE Arca, L.L.C., the equities trading facility of NYSE Arca
Equities. The Exchange proposes to amend Commentary .01(a)(3) to NYSE
Arca Equities Rule 5.2(j)(3), to increase from 25 percent to 30 percent
the maximum weight of the most heavily weighted component stock of an
index or portfolio underlying a series of Investment Company Units
(``ICUs'').
The text of the proposed rule change is available on the NYSE Arca
Web site (http://www.nysearca.com), at the Commission's Public
Reference Room, and the principal office of NYSE Arca.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NYSE Arca 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. NYSE Arca 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
NYSE Arca Equities Rule 5.2(j)(3) provides listing standards for
ICUs to permit listing and trading of these securities pursuant to Rule
19b-4(e) under the Exchange Act.\3\ Rule 19b-4(e) 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 Exchange Act,\4\ if the
Commission has approved, pursuant to section 19(b) of the Exchange
Act,\5\ the SRO's trading rules, procedures and listing standards for
the product class that would include the new derivative securities
product, and the SRO has a surveillance program for the product
class.\6\ These standards are frequently referred to as ``generic''
listing standards.
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\3\ 17 CFR 240.19b-4(e).
\4\ 17 CFR 240.19b-4(c)(1).
\5\ 15 U.S.C. 78s(b).
\6\ See Securities Exchange Act Release No. 40761 (December 8,
1998), 63 FR 70952 (December 22, 1998) (File No. S7-13-98).
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In October of 1999, the Commission approved PCX Equities \7\ Rule
5.2(j)(3), which sets forth the rules related to the listing and
trading criteria for ICUs.\8\ In July 2001, the Commission also
approved the Pacific Exchange's \9\ generic listing standards for the
listing and trading, or the trading pursuant to unlisted trading
privileges, of ICUs under PCX Equities Rule 5.2(j)(3).\10\
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\7\ PCX Equities, Inc. was the predecessor to NYSE Arca
Equities.
\8\ See Securities Exchange Act Release No. 41983 (October 6,
1999), 64 FR 56008 (October 15, 1999) (SR-PCX-98-29).
\9\ The Pacific Exchange, Inc. was the predecessor to NYSE Arca.
\10\ See Securities Exchange Act Release No. 44551 (July 12,
2001), 66 FR 37716 (July 19, 2001) (SR-PCX-2001-14).
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NYSE Arca Equities Rule 5.2(j)(3) provides that, upon the initial
listing of a series of ICUs under Rule 19b-4(e), component stocks that
in the aggregate account for at least 90 percent of the weight of the
index or portfolio underlying such series must have a minimum market
value of at least $75 million. In addition, the component stocks in the
index or portfolio must have a minimum monthly trading volume during
each of the last six months of at least 250,000 shares for stocks
representing at least 90 percent of the weight of the index or
portfolio. These standards assure that the underlying index's or
portfolio's component stocks are generally actively traded and with
substantial market capitalization.
Currently, Commentary .01(a)(3) to NYSE Arca Equities Rule
5.2(j)(3) also provides that the most heavily weighted component stock
in an underlying index or portfolio cannot exceed 25 percent of the
weight of the index or portfolio, and the five most heavily weighted
component stocks cannot exceed 65 percent of the weight of the index or
portfolio. The Exchange proposes to increase from 25 percent to 30
percent the permissible weight of the most heavily weighted component
stock in an underlying index or portfolio.\11\ The five most heavily
weighted stocks would continue to be required to represent no more than
65 percent of the weight of the index or portfolio. The Exchange states
that this change will provide additional flexibility to issuers of ICUs
to be listed pursuant to Rule 19b-4(e) in developing ICUs based on
indexes or portfolios.
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\11\ The New York Stock Exchange LLC (``NYSE'') recently
proposed a substantially identical revision to its ICU rules. See
SR-NYSE-2006-39, available on the NYSE Web site (http://www.nyse.com
), and infra note 18.
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The Exchange notes that unit investment trusts and mutual funds are
subject to Internal Revenue Code Subchapter M requirements applicable
to regulated investment companies. In order to maintain regulated
investment company status, these entities would be required to
rebalance their portfolios quarterly to avoid any one stock exceeding a
25 percent weighting in the trust's or fund's portfolio.\12\
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\12\ According to NYSE Arca, under Subchapter M of the Internal
Revenue Code, for a fund to qualify as a regulated investment
company, the securities of a single issuer can account for no more
than 25 percent of a fund's total assets, and at least 50 percent of
a fund's total assets must be comprised of cash (including
government securities) and securities of single issuers whose
securities account for less than 5 percent of such fund's total
assets.
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[[Page 35318]]
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with section 6(b) of the Exchange Act,\13\ in general, and furthers the
objectives of section 6(b)(5) of the Exchange Act,\14\ in particular,
in that it is designed 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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\13\ 15 U.S.C. 78f(b).
\14\ 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 Exchange Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were neither solicited nor received.
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 Exchange 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-2006-22 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-2006-22. 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 will also be available for inspection and copying at the
principal office of NYSE Arca. 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-2006-22 and should be submitted July 10, 2006.
IV. Commission's Findings and Order Granting Accelerated Approval of a
Proposed Rule Change
After careful consideration, the Commission finds that the proposed
rule change is consistent with the Exchange Act and the rules and
regulations thereunder applicable to a national securities
exchange.\15\ In particular, the Commission believes that the proposal
is consistent with section 6(b)(5) of the Exchange Act,\16\ which
requires that the rules of an exchange 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 and protect investors and the public interest. The
Commission believes that the proposed rule is reasonably designed to
provide additional flexibility in listing ICUs under the Exchange's
generic listing standards. The Commission further believes that the
proposed rule change will serve to protect investors and the public
interest by maintaining the size and liquidity requirements applicable
to the securities underlying the relevant index or portfolio.
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\15\ In approving this proposal, the Commission has considered
its impact on efficiency, competition, and a capital formation. See
15 U.S.C. 78c(f).
\16\ 15 U.S.C. 78f(b)(5).
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Under section 19(b)(2) of the Exchange Act,\17\ the Commission may
not approve any proposed rule change prior the thirtieth day after the
date of publication of the notice of filing thereof, unless the
Commission finds good cause for so doing. The Commission hereby finds
good cause for approving the proposed rule change prior to the
thirtieth day after publishing notice of the filing thereof in the
Federal Register. The Commission notes that it has previously approved
similar proposals by the American Stock Exchange LLC (``Amex''), and
Chicago Board Options Exchange, Incorporated (``CBOE'') to increase to
30 percent the permissible weight of the most heavily weighted
component stock in an underlying index.\18\
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\17\ 15 U.S.C. 78s(b)(2).
\18\ See Securities Exchange Act Release Nos. 44532 (July 10,
2001), 66 FR 37078 (July 16, 2001) (SR-Amex-2001-25) (approving an
increase for indexes underlying Portfolio Depositary Receipts and
Index Fund shares listed on the Amex) and 44908 (October 4, 2001),
66 FR 52161 (October 12, 2001) (SR-CBOE-2001-38) (approving an
increase for indexes underlying Index Portfolio Receipts and Index
Portfolio Shares listed on the CBOE). See also Securities Exchange
Act Release No. 53934 (June 1, 2006), 71 FR 33326 (June 8, 2006)
(NYSE 2006-39) (approving an increase for indexes or portfolios
underlying a series of Investment Company Units listed on NYSE).
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For the reasons set forth above, the Commission finds good cause to
accelerate approval of the proposed rule change pursuant to section
19(b)(2) of the Exchange Act.
V. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Exchange Act, that the proposed rule change (SR-NYSEArca-2006-22) is
hereby approved on an accelerated basis.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-9534 Filed 6-16-06; 8:45 am]
BILLING CODE 8010-01-P