Self-Regulatory Organizations; American Stock Exchange LLC; Order Granting Accelerated Approval to Proposed Rule Change and Amendment No. 1 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 2 Thereto Relating to Generic Listing Standards for Series of Portfolio Depositary Receipts and Index Fund Shares Based on International or Global Indexes, 66993-66998 [E6-19415]
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Federal Register / Vol. 71, No. 222 / Friday, November 17, 2006 / Notices
2. Section 6(c) of the Act provides that
the Commission may exempt any
person, security, or transaction or any
class or classes of persons, securities, or
transactions from any provision of the
Act, or from any rule thereunder, if and
to the extent that such exemption is
necessary or appropriate in the public
interest and consistent with the
protection of investors and the purposes
fairly intended by the policies and
provisions of the Act. Applicants
believe that their requested relief meets
this standard.
3. Applicants state that the Funds’
shareholders rely on the Adviser,
subject to oversight by the Board, to
select the Subadvisers best suited to
achieve a Fund’s investment objectives.
Applicants assert that from the
perspective of the investor, the role of
the Subadvisers is comparable to that of
individual portfolio managers employed
by traditional investment advisory
firms. Applicants contend that requiring
shareholder approval of Subadvisory
Agreements would impose costs and
unnecessary delays on the Funds and
may preclude the Adviser from acting
promptly in a manner considered
advisable by the Board. Applicants also
note that the Advisory Agreement will
remain subject to the shareholder
approval requirements in section 15(a)
of the Act and rule 18f–2 under the Act.
Applicants’ Conditions:
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. Before a Fund may rely on the
order requested in the application, the
operation of the Fund in the manner
described in the application will be
approved by a majority of the Fund’s
outstanding voting securities, as defined
in the Act, or, in the case of a Fund
whose public shareholders purchase
shares on the basis of a prospectus
containing the disclosure contemplated
by condition 2 below, by the sole initial
shareholder before offering the Fund’s
shares to the public.
2. Each Fund will disclose in its
prospectus the existence, substance, and
effect of any order granted pursuant to
this application. In addition, each Fund
will hold itself out to the public as
employing the management structure
described in the application. The
prospectus will prominently disclose
that the Adviser has ultimate
responsibility, subject to oversight by
the Board, to oversee the Subadvisers
and recommend their hiring,
termination and replacement.
3. At all times, at least a majority of
the Board will be Independent Trustees,
and the nomination of new or additional
Independent Trustees will be at the
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discretion of the then-existing
Independent Trustees.
4. The Adviser will not enter into a
Subadvisory Agreement with any
Affiliated Subadviser without that
agreement, including the compensation
to be paid thereunder, being approved
by the shareholders of the applicable
Fund.
5. When a Subadviser change is
proposed for a Fund with an Affiliated
Subadviser, the Board, including a
majority of the Independent Trustees,
will make a separate finding, reflected
in the Board minutes, that the change is
in the best interests of the Fund and its
shareholders and does not involve a
conflict of interest from which the
Adviser or the Affiliated Subadviser
derives an inappropriate advantage.
6. Within 90 days of the hiring of a
new Subadviser, the Adviser will
furnish shareholders of the affected
Fund with all information about the
new Subadviser that would be included
in a proxy statement. The Adviser will
meet this condition by providing
shareholders of the applicable Fund
with an information statement meeting
the requirements of Regulation 14C,
Schedule 14C and Item 22 of Schedule
14A under the Securities Exchange Act
of 1934.
7. The Adviser will provide general
management services to each Fund,
including overall supervisory
responsibility for the general
management and investment of the
Fund’s assets, and, subject to review
and approval by the Board, will (i) set
the Fund’s overall investment strategies,
(ii) evaluate, select and recommend
Subadvisers to manage all or a part of
the Fund’s assets, (iii) allocate and,
when appropriate, reallocate the Fund’s
assets among multiple Subadvisers, (iv)
monitor and evaluate the performance
of the Subadvisers, and (v) implement
procedures reasonably designed to
ensure that the Subadvisers comply
with each Fund’s investment objective,
policies and restrictions.
8. No trustee or officer of the Funds,
or director or officer of the Adviser will
own directly or indirectly (other than
through a pooled investment vehicle
that is not controlled by such person)
any interest in a Subadviser, except for
(a) ownership of interests in the Adviser
or any entity that controls, is controlled
by, or is under common control with the
Adviser, or (b) ownership of less than
1% of the outstanding securities of any
class of equity or debt of a publiclytraded company that is either a
Subadviser or an entity that controls, is
controlled by or is under common
control with a Subadviser.
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66993
9. The requested order will expire on
the effective date of rule 15a–5 under
the Act, if adopted.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6–19441 Filed 11–16–06; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
Federal Register Citation of Previous
Announcement: [71 FR 66352,
November 14, 2006].
Closed Meeting.
100 F Street, NE., Washington,
STATUS:
PLACE:
DC.
DATE AND TIME OF PREVIOUSLY ANNOUNCED
MEETING: Monday, November 20, 2006 at
2 p.m.
Time Change.
The Closed Meeting scheduled for
Monday, November 20, 2006 at 2 p.m.
has been changed to Monday, November
20, 2006 at 10 a.m.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items. For further
information and to ascertain what, if
any, matters have been added, deleted
or postponed, please contact the Office
of the Secretary at (202) 551–5400.
CHANGE IN THE MEETING:
Dated: November 15, 2006.
Nancy M. Morris,
Secretary.
[FR Doc. 06–9269 Filed 11–15–06; 11:00 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54739; File No. SR–Amex–
2006–78]
Self-Regulatory Organizations;
American Stock Exchange LLC; Order
Granting Accelerated Approval to
Proposed Rule Change and
Amendment No. 1 Thereto and Notice
of Filing and Order Granting
Accelerated Approval to Amendment
No. 2 Thereto Relating to Generic
Listing Standards for Series of
Portfolio Depositary Receipts and
Index Fund Shares Based on
International or Global Indexes
November 9, 2006.
I. Introduction
On August 18, 2006, the American
Stock Exchange LLC (‘‘Amex’’ or
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Federal Register / Vol. 71, No. 222 / Friday, November 17, 2006 / Notices
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Exchange Act’’ or ‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change to adopt generic listing
standards pursuant to Rule 19b–4(e) 3
for series of portfolio deposit receipts
(‘‘PDRs’’) and index fund shares
(‘‘IFSs’’) based on international or global
indexes. On October 12, 2006, Amex
submitted Amendment No. 1 to the
proposal.4 The proposed rule change
and Amendment No. 1 thereto were
published for comment in the Federal
Register on October 19, 2006 for a 15day comment period.5 The Commission
received one comment letter.6 On
November 6, 2006, Amex submitted
Amendment No. 2 to the proposal.7 This
order approves the proposed rule
change, as amended, on an accelerated
basis.
II. Description of Proposal
As explained more fully in the notice
of the proposed rule change, the
Exchange proposes to revise Amex
Rules 1000 and 1000A to include
generic listing standards for series of
PDRs and IFSs that are based on
international or global indexes.8
Additionally, the Exchange proposes to
revise Amex Rules 1000 and 1000A to
include generic listing standards for
PDRs and IFSs (PDRs and IFSs together
referred to as ‘‘exchange-traded funds’’
or ‘‘ETFs’’) that are based on indexes or
portfolios previously approved by the
Commission as an underlying
benchmark for the trading of PDRs, IFSs,
1 15
U.S.C. 78s(b)(l).
CFR 240. 19b–4.
3 17 CFR 240.19b–4(e).
4 In Amendment No. 1, Amex revised the
proposed rule text and clarified certain aspects of
its proposal.
5 See Securities Exchange Act Release No. 54595
(October 12, 2006), 71 FR 61811.
6 See letter from Ira P. Shapiro, Principal and
Associate General Counsel, Barclays Global
Investors (‘‘BGI’’), dated October 29, 2006 (‘‘BGI
Comment Letter’’).
7 In Amendment No. 2, Amex clarified the nature
of its surveillance procedures applicable to ETFs
that may be listed and traded pursuant to the
proposed rule change.
8 8 Amex Rules 1000 et seq. allow for the listing
and trading on the Exchange of PDRs, which
represent interests in a unit investment trust
registered under the Investment Company Act of
1940 (‘‘1940 Act’’) that operates on an open-end
basis and that holds the securities that comprise an
index or portfolio. Amex Rules 1000A et seq.
provide standards for the listing and trading of IFSs,
which are securities issued by an open-end
management investment company based on a
portfolio of stocks or fixed income securities that
seeks to provide investment results that correspond
generally to the price and yield performance of a
specified foreign or domestic stock index or fixed
income securities index.
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options or other specified index-based
securities. Finally, Amex proposes other
minor clarifying changes to Amex Rules
1000, 1002, 1000A and 1002A.9
Specifically, the Exchange proposes to
revise Commentary .03 to Rule 1000 and
Commentary .02 to Rule 1000A to
include generic listing standards for
series of ETFs that are based on
international or global indexes, or on
indexes previously approved by the
Commission under Section 19(b)(2) of
the Exchange Act for the trading of
ETFs, options or other index-based
securities. This proposal will enable the
Exchange to list and trade ETFs
pursuant to Rule 19b–4(e) 10 of the
Exchange Act if each of the conditions
set forth in Commentary .03 to Rule
1000 or Commentary .02 to Rule 1000A
is satisfied. Rule 19b–4(e) provides that
the listing and trading of a new
derivative securities product by a selfregulatory organization (‘‘SRO’’) shall
not be deemed a proposed rule change,
pursuant to paragraph (c)(1) of Rule
19b–4, if the Commission has approved,
pursuant to Section 19(b) of the
Exchange 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.11
To list a PDR or an IFS pursuant to
the proposed generic listing standards
for international or global indexes, the
index underlying the PDR or IFS must
satisfy all the conditions in Commentary
.03 to Rule 1000 (for PDRs) or proposed
Commentary .02 to Rule 1000A (for
IFSs). As with the existing generic
listing standards for ETFs based on
domestic indexes, the Exchange states
that these generic listing standards are
intended to ensure that stocks with
substantial market capitalization and
trading volume account for a substantial
portion of the weight of an index or
portfolio.
9 The standards set out in Commentary .03(a)(A)
to Rule 1000 and Commentary .02(a)(A) to Rule
1000A are being modified to make the wording of
each requirement consistent; in addition, standard
(5) of these Commentaries has been modified to
reflect the Commission’s adoption of Regulation
NMS, 17 CFR 242.600 et seq. Proposed Commentary
.03(b)(iv) to Rule 1000 and Commentary .02(b)(iv)
to Rule 1000A have been added to require that
entities that advise index providers or calculators
and related entities have in place procedures
designed to prevent the use and dissemination of
material non-public information regarding the
index underlying the ETF.
10 17 CFR 240.19b–4(e).
11 When relying on Rule 19b–4(e), the SRO must
submit Form 19b-4(e) to the Commission within
five business days after the SRO begins trading the
new derivative securities products. See Securities
Exchange Act Release No. 40761 (December 8,
1998), 63 FR 70952 (December 22, 1998).
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As proposed, the definition section of
each of Rule 1000 and Rule 1000A
would be revised to include definitions
of U.S. Component Stock and Non-US
Component Stock. These new
definitions would provide the basis for
the standards for indexes with either
domestic or international stocks, or a
combination of both. A ‘‘Non-US
Component Stock’’ would mean an
equity security issued by an entity that:
(a) Is not organized, domiciled or
incorporated in the United States; (b) is
not registered under Section 12(b) or
12(g) of the Exchange Act; and (c) is an
operating company (including Real
Estate Investment Trusts (REITS) and
income trusts, but excluding investment
trusts, unit trusts, mutual funds, and
derivatives). This definition is designed
to create a category of component stocks
that are issued by companies that are
not based in the U.S., but that also are
not subject to oversight through
Commission registration, and would
include sponsored Global Depositary
Receipts (‘‘GDRs’’) and European
Depositary Receipts (‘‘EDRs’’). A ‘‘US
Component Stock’’ would mean an
equity security that is registered under
Section 12(b) or 12(g) of the Exchange
Act.
The Exchange proposes that to list an
ETF based on an international or global
index or portfolio pursuant to the
generic listing standards, such index or
portfolio must meet the following
criteria:
• Component stocks that in the
aggregate account for at least 90% of the
weight of the index or portfolio shall
have a minimum market value 12 of at
least $100 million (Rule 1000,
Commentary .03(a)(B)(1) and Rule
1000A, Commentary .02(a)(B)(1)); 13
• Component stocks representing at
least 90% of the weight of the index or
portfolio shall have a minimum
worldwide monthly trading volume 14
12 The Exchange stated for purposes of this filing
that ‘‘market value’’ is calculated by multiplying the
total shares outstanding by the price per share of
the component stock.
13 The BGI Comment Letter notes that certain noaction relief provided by Commission staff under
the Exchange Act (the ‘‘ETF No-Action Letters’’)
uses a public float standard, rather than this market
value standard, and suggests consistency. The
Exchange notes that the ETF No-Action Letters
address separate regulatory objectives but is willing
to examine modifications to its listing standards in
the future. Telephone conference among Marija
Willen, Vice President and Associate General
Counsel, Amex, Scott Ebner, Vice President, Amex,
Florence Harmon, Senior Special Counsel, Division
of Market Regulation (‘‘Division’’), Commission,
and Brian Trackman, Special Counsel, Division,
Commission, on November 6, 2006 (‘‘November 6
Telephone Conference’’).
14 The BGI Comment Letter requested
clarification that ‘‘worldwide monthly trading
volume’’ includes any shares underlying American
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during each of the last six months of at
least 250,000 shares 15 (Rule 1000,
Commentary .03(a)(B)(2) and Rule
1000A, Commentary .02(a)(B)(2)); 16
• The most heavily weighted
component stock may not exceed 25%
of the weight of the index or portfolio
and the five most heavily weighted
component stocks may not exceed 60%
of the weight of the index or portfolio
(Rule 1000, Commentary .03(a)(B)(3)
and Rule 1000A, Commentary
.02(a)(B)(3));
• The index or portfolio shall include
a minimum of 20 component stocks
(Rule 1000, Commentary .03(a)(B)(4)
and Rule 1000A, Commentary
.02(a)(B)(4)); and
• Each US Component Stock in the
index or portfolio shall be listed on a
national securities exchange and shall
be an NMS Stock as defined in Rule 600
of Regulation NMS under the Exchange
Act, and each Non-US Component Stock
in the index or portfolio shall be listed
on an exchange that has last-sale
reporting (Rule 1000, Commentary
.03(a)(B)(5) and Rule 1000A,
Commentary .02(a)(B)(5)).17
Depositary Receipts (‘‘ADRs’’) traded in the U.S. In
response, the Exchange states that any trading of
shares represented by ADRs, GDRs, or EDRs, which
are traded on a market with last sale reporting,
would be included in the calculation of worldwide
monthly trading volume. See November 6
Telephone Conference, supra note 13.
15 The BGI Comment Letter asserts that it would
be less arbitrary to measure trading volume in terms
of dollars rather than shares. The Exchange notes
that the share trading volume criteria is consistent
with the existing generic listing standards for ETFs
based on domestic indexes and other listing
standards for derivative products, and the
Commission believes the Exchange’s choice is
consistent with the Act. Nevertheless, the Exchange
is willing to examine the dollar volume criteria in
the future. See November 6 Telephone Conference,
supra note 13.
16 16 The BGI Comment Letter notes that the ETF
No-Action Letters measure liquidity of components
in the index or portfolio differently than Amex’s
proposed rules measure liquidity. The Exchange
notes that the ETF No-Action Letters address
separate regulatory objectives but is willing to
examine modifications to its listing standards in the
future. See November 6 Telephone Conference,
supra note 13.
17 The BGI Comment Letter questioned which
non-U.S. exchanges have systems for ‘‘last-sale
reporting.’’ In this regard, the Exchange states,
when considering whether an ETF meets its listing
standards, that it will use several methods to
determine whether a non-U.S. exchange has lastsale reporting. For example, the Exchange states
that it will evaluate whether execution prices are
available for transactions in securities listed and
traded on such exchange. The Exchange further
states that last-sale reporting is easily verified
through major market data vendors and other
entities. In addition, the Exchange states that many
index providers have policies to include index
components only from foreign exchanges where
pricing, transaction reporting, and corporate news
are sufficiently transparent and widely
disseminated. See November 6 Telephone
Conference, supra note 13.
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66995
The Exchange also proposes to
include in the generic listing standards
for the listing of ETFs, in new
Commentary .03(a)(C) to Rule 1000 and
Commentary .02(a)(C) to Rule 1000A,
indexes that have been approved by the
Commission as underlying benchmarks
in connection with the listing of
options, PDRs, IFSs, Index-Linked
Exchangeable Notes, or Index-Linked
Securities.18
The Exchange also proposes to modify
Commentary .03(b)(iii) to Rule 1000 and
Commentary .02(b)(iii) to Rule 1000A to
require that the index value for all ETFs
listed pursuant to the proposed
standards for international and global
indexes (or otherwise approved by the
Commission) be widely disseminated by
one or more major market data vendors
at least every 60 seconds during the
time when the ETF trades on the
Exchange. If the index value does not
change during some or all of the period
when trading is occurring on the
Exchange, the last official calculated
index value must remain available
throughout Exchange trading hours.
Index values for ETFs listed pursuant to
the standards for domestic indexes (or
otherwise approved by the Commission)
must be disseminated at least every 15
seconds during the trading day. The
proposed modification to this
requirement for ETFs based on
international or global indexes reflects
that, in some instances, the frequency of
intra-day trading information is limited
with respect to Non-US Component
Stocks and that, in many cases, trading
hours for overseas markets overlap only
in part, or not at all, with Exchange
trading hours.
In addition, Commentary .03(c) to
Rule 1000 and Commentary .02(c) to
Rule 1000A are being modified to define
the term ‘‘Intraday Indicative Value’’ as
the estimate that is updated at least
every 15 seconds of the value of a share
of each ETF, for ease of reference in
these rules. A similar change is also
proposed in Rules 1002 and 1002A,
which are the continued listing
standards for these and other ETFs. The
Exchange also proposes to clarify in
Commentary .03(c) to Rule 1000 and
Commentary .02(c) to Rule 1000A that
the Intraday Indicative Value will be
updated during the hours the ETF
shares trade on the Exchange to reflect
changes in the exchange rate between
the U.S. dollar and the currency in
which any component stock is
denominated for all ETFs based on
global or international indexes.
The Exchange is also proposing to add
a subsection (i) to Commentary .03 to
Rule 1000 and a subsection (j) to
Commentary .02 to Rule 1000A
regarding the creation and redemption
process for ETFs and compliance with
Federal securities laws for ETFs listed
pursuant to the generic listing standards
for international and global indexes.
These new subsections will apply to
PDRs listed pursuant to Commentary
.03(a)(B) or (C) and for IFSs listed
pursuant to Commentary .02(a)(B) or
(C).
For the listing and trading of all ETFs,
whether or not by generic listing
standards, the Exchange is also
proposing to include additional,
continued listing standards relating to
ETFs that substitute new indexes, either
in the instance where the value of the
index or portfolio of securities on which
the ETF is based is no longer calculated
or available, or in the event that the ETF
chooses to substitute a new index or
portfolio for the existing index or
portfolio. In both instances, the
Exchange would commence delisting
proceedings if the new index or
portfolio does not meet the standards set
forth in Rules 1000 et seq. or Rules
1000A et seq., as applicable.19 If, for
example, an ETF chose to substitute an
index that did not meet any of the
generic listing standards for listing of
18 BGI questions requiring comprehensive
surveillance sharing agreements (‘‘CSSAs’’) with the
home country market for the underlying index
components in proposed Commentary .03(a)(C) to
Amex Rule 1000 and Commentary .02(a)(C) to
Amex Rule 1000A. The standards set out in
paragraph (B) of both Commentaries do not require
a CSSA with the home country market because they
provide for minimum levels of liquidity,
concentration and pricing transparency for index
components. If an ETF is based on an index whose
components do not satisfy these composition
criteria, it may be listed pursuant to paragraph (C)
of both Commentaries if the Commission has
previously approved the index or portfolio in
connection with the listing and trading of another
derivative product. To the extent that the
Commission’s approval of that index or portfolio
required CSSAs, that requirement must also be
satisfied. See November 6 Telephone Conference,
supra note 13.
19 The BGI Comment Letter requested
clarification of when an index is ‘‘no longer
calculated or available’’ and in such event, why a
‘‘substantially similar’’ substituted index could not
satisfy the dissemination requirements of the listing
standards. In response, the Exchange notes that
many indexes change components periodically
based on a specified methodology. Index turnover,
consistent with such an index methodology, may
not constitute an index substitution triggering
possible delisting of the ETF. However, if the index
underlying the ETF is substituted with a new index
or the specified index methodology is substantially
changed from the announced methodology under
which the product was listed, the Exchange
acknowledges that it must either file a new Form
19b–4(e) or the listing and trading of the derivative
product is a proposed rule change pursuant to
Section 19(b)(2) of the Exchange Act, 15 U.S.C.
78s(b)(2). See November 6 Telephone Conference,
supra note 13.
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ETFs pursuant to Rule 19b–4(e),20 then
for continued listing, approval by the
Commission of a separate filing
pursuant to Section 19(b)(2) 21 to list
and trade that ETF would be required.22
The Exchange proposes to modify the
initial and continued listing standards
for all ETFs relating to disseminated
information to formalize in the rules
existing best practices for providing
equal access to material information
about the value of ETFs. Pursuant to
Rules 1002(a)(ii) and 1002A(a)(ii), prior
to approving an ETF for listing, the
Exchange will obtain a representation
from the ETF issuer that the net asset
value (‘‘NAV’’) per share will be
calculated daily and made available to
all market participants at the same time.
In addition, proposed Rules
1002(b)(ii) and 1002A(b)(ii) establish
that if the Intraday Indicative Value (as
defined in Commentary .03 to Rule 1000
and Commentary .02 to Rule 1000A) or
the index value applicable to that series
of ETFs is not being disseminated as
required, the Exchange may halt trading
during the day in which the
interruption to the dissemination of the
Intraday Indicative Value or the index
value occurs. If the interruption to the
dissemination of the Intraday Indicative
Value or the index value persists past
the trading day in which it occurred, the
Exchange will halt trading no later than
the beginning of the trading day
following the interruption.
With regard to trading, ETFs listed
under the proposed standards will be
subject to Amex rules and procedures
that govern the trading of ETFs and the
trading of equity securities on the
Amex, including among others, rules
and procedures governing trading halts,
disclosures to members, responsibilities
of the specialist, account opening and
customer suitability requirements, the
election of a stop or limit order, and
margin.23
The Exchange represents that its
surveillance procedures are adequate to
properly monitor the trading of the
PDRs and IFSs listed pursuant to the
proposed new listing standards.
Specifically, the Amex will rely on its
existing surveillance procedures
governing PDRs and IFSs. In addition,
the Exchange has a general policy
prohibiting the distribution of material,
20 17
CFR 240.19b–4(e).
U.S.C. 78s(b)(2).
22 The Exchange notes that this is not a new
requirement under the Exchange Act. The Exchange
acknowledges that transparency of the index
methodology is necessary for effective pricing of the
derivative product and investor protection. See
November 6 Telephone Conference, supra note 13.
23 See Amex Rules 1000 through 1006 and 1000A
through 1005A.
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non-public information by its
employees.
III. Discussion and Commission
Findings
After careful review, including
consideration of the BGI Comment
Letter, the Commission finds that the
proposed rule change, as amended, is
consistent with the requirements of the
Exchange Act, in general, and the rules
and regulations thereunder applicable to
a national securities exchange.24 In
particular, the Commission finds that
the proposed rule change, as amended,
is consistent with Section 6(b)(5) of the
Exchange Act,25 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
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
Generic Listing Standards for ExchangeTraded Funds
To list ETFs based on international or
global indexes, or on indexes or
portfolios previously approved by the
Commission as an underlying
benchmark for a derivative security, the
Amex currently must file a proposed
rule change with the Commission
pursuant to Section 19(b)(1) of the
Exchange Act and Rule 19b–4
thereunder. However, Rule 19b–4(e)
provides that the listing and trading of
a new derivative securities product by a
SRO will not be deemed a proposed rule
change pursuant to Rule 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 derivative
securities product, and the SRO has a
surveillance program for the product
class. The Exchange’s proposed rules for
the listing and trading of ETFs based on
international or global indexes pursuant
to Rule 19b–4(e) fulfills these
requirements.
The Amex’s ability to rely on Rule
19b–4(e) to list ETFs that meet the
requirements of Commentary .03 to
Amex Rule 1000 or Commentary .02 to
Amex Rule 1000A potentially reduces
the time frame for bringing these
securities to the market, thereby
24 In approving this 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).
25 15 U.S.C. 78f(b)(5).
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reducing the burdens on issuers and
other market participants and promoting
competition and making ETFs based on
global or international indexes available
to investors more quickly.
The Commission has previously
approved generic listing standards
pursuant to Rule 19b–4(e) 26 of the
Exchange Act for ETFs based on indexes
that consist of stocks listed and traded
on U.S. exchanges.27 The Commission
has also previously approved the listing
and trading by the Exchange of several
ETFs based on a variety of international
and global market indexes.28 In
approving these securities for Exchange
trading, the Commission considered
applicable Amex rules that govern their
trading. The Commission believes that
generic listing standards for these
securities should fulfill the intended
objective of Rule 19b-4(e) under the
Act 29 and allow those ETFs that satisfy
the generic listing standards to
commence trading without the need for
public comment and Commission
approval.30
ETF Listing and Trading
The Commission finds that the Amex
proposal contains adequate rules and
procedures to govern the listing of ETFs
based on international or global indexes
listed pursuant to Rule 19b-4(e) on the
Exchange or trading pursuant to
unlisted trading privileges (‘‘UTP’’).31
As proposed, Commentary .03 to
Amex Rule 1000 and Commentary .02 to
Amex Rule 1000A establish standards
26 17
CFR 240.19b–4(e).
Commentary .03 to Amex Rule 1000 and
Commentary .02 to Amex Rule 1000A. See also
Securities Exchange Act Release No. 42787 (May
15, 2000), 65 FR 33598 (May 24, 2000).
28 See, e.g., Securities Exchange Act Release Nos.
50189 (August 12, 2004), 69 FR 51723 (August 20,
2004) (approving the listing and trading of certain
Vanguard International Equity Index Funds); 44700
(August 14, 2001), 66 FR 43927 (August 21, 2001)
(approving the listing and trading of series of the
iShares Trust based on certain S&P global indexes).
Likewise, the Commission has approved listing
standards that permit the listing and trading of
index-based derivative securities where the same
index had been considered in connection with the
Commission’s approval of another derivative
security. See, e.g., Amex Company Guide Section
107D (Index-Linked Securities), Securities
Exchange Act Release No. 51563 (April 15, 2005),
70 FR 21257 (April 25, 2005).
29 17 CFR 240.19b–4(e).
30 The Commission notes that the failure of a
particular index to comply with the proposed
generic listing standards under Rule 19b–4(e),
however, would not preclude the Exchange from
submitting a separate filing pursuant to Section
19(b)(2), requesting Commission approval to list
and trade a particular index-linked product.
31 An exchange trading ETFs pursuant to UTP
must comply with applicable trading rules and
surveillance requirements for the derivative
product. See Securities Exchange Act Release No.
35637 (April 21, 1995), 60 FR 20891 (April 28,
1995).
27 See
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for the composition of an index or
portfolio underlying an ETF. These
requirements are designed, among other
things, to require that components of an
index or portfolio underlying an ETF are
adequately capitalized and sufficiently
liquid, and that no one stock dominates
the index.
Taken together, the Commission finds
that these standards are reasonably
designed to ensure that stocks with
substantial market capitalization and
trading volume account for a substantial
portion of any underlying index or
portfolio, and that when applied in
conjunction with the other applicable
listing requirements, will permit the
listing only of ETFs that are sufficiently
broad-based in scope to minimize
potential manipulation. Similarly, the
Commission finds that the proposed
listing standards are designed to
preclude ETFs from becoming
surrogates for trading in unregistered
securities. The Commission further
believes that the requirement that each
component security underlying an ETF
be listed on an exchange and subject to
last-sale reporting should contribute to
the transparency of the market for ETFs.
The proposed generic listing
standards will, alternatively, permit
listing of an ETF if the Commission has
previously approved the underlying
index for trading in connection with
another derivative product and the
underlying index or portfolio
constituents are all either U.S.
Component Stocks, which must be
listed on a national securities exchange
and be an NMS stock as defined in Rule
600(b)(47) of Regulation NMS under the
Act,32 or Non-US Component Stocks
listed on an exchange that has last-sale
reporting.33 The Commission believes
that if it has previously determined that
such index and its components were
sufficiently transparent, then the
Exchange may rely on this finding,
provided that the Exchange complies
with the rules and conditions set forth
by the Commission in its prior approval
order, including surveillance sharing
arrangements with the foreign market, if
any.34
Regardless of whether the ETF is
listed and/or traded pursuant to these
generic listing standards, the Exchange’s
proposal also requires the value of an
index or portfolio underlying an ETF
based on a global or international index
to be disseminated at least once every
32 17
CFR 242.600(b)(47).
proposed Commentary .03(a)(C) to Amex
Rule 1000 and Commentary .02(a)(C) to Amex Rule
1000A.
34 The Commission notes that it has taken this
position connection with listing standards for ILSs.
See supra note 28.
33 See
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16:31 Nov 16, 2006
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60 seconds.35 In addition, an Intraday
Indicative Value, which represents an
estimate of the value of a share of each
ETF, must be updated and disseminated
at least once every 15 seconds during
the time an ETF trades on the
Exchange.36 The Commission believes
that by requiring pricing information for
both the relevant underlying index 37
and the ETF to be readily available and
disseminated, the proposal is designed
to ensure a fair and orderly market for
ETFs listed and traded pursuant to
Amex Rules 1000 and 1000A.
The Exchange proposes continued
listing standards for all ETFs, whether
listed pursuant to generic listing
standards or by Commission approval of
the specific product. In the event that an
underlying index or portfolio value is
no longer calculated on at least a 15
second basis or is substituted with an
index that does not meet the applicable
requirements, the Exchange will
commence delisting proceedings. The
Commission believes that this is an
important safeguard to help assure that
ETFs listed and traded on the Exchange
meet applicable listing standards on an
ongoing basis and do not, for example,
trade without key pricing information
available.
The Commission notes that each ETF
will be required to represent that it will
calculate and make available daily the
NAV to all market participants at the
same time. Furthermore, proposed
Amex Rules 1002(b)(ii) and 1000A(b)(ii)
require that, if the Intraday Indicative
Value or index value applicable to an
ETF is not disseminated as required, the
Exchange may halt trading during the
day in which the interruption occurs. If
the interruption continues, then the
Exchange will halt trading no later than
the beginning of the next trading day.
Similarly, if the Exchange deems further
dealings in the product inadvisable,
trading will be halted. The Commission
believes that the delisting criteria, NAV
dissemination requirements, and trading
halt rules will help ensure an
appropriate level of transparency exists
with respect to each foreign ETF to
35 See proposed Commentary .03(b)(iii) to Amex
Rule 1000 and Commentary .02(b)(iii) to Amex Rule
1000A. To the extent an index or portfolio value
does not change during some of the time that a
foreign ETF trades on the Exchange, the last official
calculated value must remain available throughout
Exchange trading hours.
36 See Commentary .03(c) to Amex Rule 1000 and
Commentary .02(c) to Amex Rule 1000A. The
Intraday Indicative Value will be updated to reflect
changes in the exchange rate between the U.S.
dollar and the currency in which any index or
portfolio component stock is denominated.
37 The requirement contemplates that one
composite index value would be disseminated in
accordance with this rule for any ETF based on
several indexes.
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66997
allow for the maintenance of fair and
orderly markets.
Surveillance
The Commission notes that any
foreign ETFs approved for listing and
trading would be subject to Amex’s
existing surveillance program for ETFs,
which the Exchange has represented are
adequate to properly monitor the
trading of ETFs listed pursuant to these
proposed generic listing standards.
Acceleration
The Commission finds good cause for
approving the proposed rule change, as
amended, prior to the 30th day after the
date of publication of the notice of filing
in the Federal Register. The Exchange
has requested accelerated approval of
the proposal to facilitate the prompt
listing and trading of ETFs based on
global or international indexes or
portfolios meeting the specified criteria
and ETFs based on indexes or portfolios
underlying derivative securities that
were previously approved by the
Commission. The Commission notes
that the Exchange’s listing standards are
based, in part, on previously approved
ETF listing standards relating to indexes
or portfolios made up of U.S.
Component Stocks or on Commission
orders approving the listing and trading
of ETFs based on global or international
indexes. The Commission believes that
accelerated approval of the proposal
should expedite the listing and trading
of additional ETFs, subject to consistent
and reasonable standards, to the benefit
of the investing public. Therefore, the
Commission finds good cause,
consistent with Section 19(b)(2) of the
Act,38 to approve the proposed rule
change on an accelerated basis.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 2 is
consistent with the Act. Comments may
be submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Amex–2006–78 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
38 15
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U.S.C. 78s(b)(2).
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Federal Register / Vol. 71, No. 222 / Friday, November 17, 2006 / Notices
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–Amex–2006–78. 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 (https://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 office of the Amex. 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–Amex–2006–78 and should
be submitted on or before December 8,
2006.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,39 that the
proposed rule change (SR–Amex–2006–
78), as modified by Amendments No. 1
and 2, is hereby approved on an
accelerated basis.
For the Commission, by the Division
of Market Regulation, pursuant to
delegated authority.40
Nancy M. Morris,
Secretary.
[FR Doc. E6–19415 Filed 11–16–06; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54732; File No. SR–
NASDAQ–2006–044]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change and
Amendment No. 1 Thereto To Modify
the Rules of the Nasdaq Global Select
Market
November 9, 2006.
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 October
10, 2006, The NASDAQ Stock Market
LLC (‘‘Nasdaq’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by Nasdaq. Nasdaq has filed this
proposal pursuant to Section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(6)
thereunder 4 which renders the proposal
effective upon filing with the
Commission. On November 2, 2006,
Nasdaq filed Amendment No. 1 to the
proposed rule change.5 The Commission
is publishing this notice to solicit
comments on the proposed rule change,
as amended, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq proposes to modify the rules
related to closed-end funds listed on the
Nasdaq Global Select Market to clarify
the treatment of business development
companies. The text of the proposed
rule change, as amended, is below.
Proposed new language is italicized.6
*
*
*
*
*
4426. Nasdaq Global Select Market
Listing Requirements
(a) No change.
(b) Liquidity Requirements
(1)–(2) No change.
(3) The publicly held shares must
have either:
(A)–(B) No change.
(C) a market value of at least $70
million in the case of: (i) An issuer
BILLING CODE 8011–01–P
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
5 In Amendment No. 1, Nasdaq, among other
things, added the requirement of $80 million
market value of listed securities for business
development companies exempt from registration
pursuant to the Investment Company Act of 1940.
6 Changes are marked to the rule text that appears
in the electronic manual of Nasdaq found at
https://www.complinet.com/nasdaq.
jlentini on PROD1PC65 with NOTICES
2 17
39 15
U.S.C. 78s(b)(2).
40 17 CFR 200.30–3(a)(12).
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16:31 Nov 16, 2006
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listing in connection with its initial
public offering; (ii) an issuer that is
affiliated with, or a spin-off from,
another company listed on the Global
Select Market; and (iii) a closed end
management investment company
registered under the Investment
Company Act of 1940 or exempt from
registration as a business development
company as defined in Section 2 of the
Investment Company Act of 1940.
(c)–(d) No change.
(e) Closed End Management
Investment Companies.
(1)–(2) No change.
(3) A closed end management
investment company that is exempt
from registration as a business
development company as defined in
Section 2 of the Investment Company
Act of 1940 shall not be required to meet
paragraph (c) of this Rule 4426 but must
have a market value of listed securities
of at least $80 million.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Nasdaq included statements concerning
the purpose of, and basis for, the
proposed rule change, as amended, 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.
Nasdaq 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
Nasdaq recently amended the listing
standards for the Nasdaq Global Select
Market, in part, to clarify the treatment
of closed-end management investment
companies.7 In that filing, Nasdaq
inadvertently failed to describe the rules
applicable to closed end management
investment companies that elect to be
treated as business development
companies. This filing clarifies that, like
other closed-end funds, business
development companies do not have to
meet the financial requirements of
Nasdaq Rule 4426(c). However, such
companies must have a market value of
7 See Securities Exchange Act Release No. 54274
(August 3, 2006), 71 FR 45878 (August 10, 2006)
(SR–NASDAQ–2006–020).
E:\FR\FM\17NON1.SGM
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]]>Agencies
[Federal Register Volume 71, Number 222 (Friday, November 17, 2006)]
[Notices]
[Pages 66993-66998]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-19415]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54739; File No. SR-Amex-2006-78]
Self-Regulatory Organizations; American Stock Exchange LLC; Order
Granting Accelerated Approval to Proposed Rule Change and Amendment No.
1 Thereto and Notice of Filing and Order Granting Accelerated Approval
to Amendment No. 2 Thereto Relating to Generic Listing Standards for
Series of Portfolio Depositary Receipts and Index Fund Shares Based on
International or Global Indexes
November 9, 2006.
I. Introduction
On August 18, 2006, the American Stock Exchange LLC (``Amex'' or
[[Page 66994]]
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'' or ``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt generic listing
standards pursuant to Rule 19b-4(e) \3\ for series of portfolio deposit
receipts (``PDRs'') and index fund shares (``IFSs'') based on
international or global indexes. On October 12, 2006, Amex submitted
Amendment No. 1 to the proposal.\4\ The proposed rule change and
Amendment No. 1 thereto were published for comment in the Federal
Register on October 19, 2006 for a 15-day comment period.\5\ The
Commission received one comment letter.\6\ On November 6, 2006, Amex
submitted Amendment No. 2 to the proposal.\7\ This order approves the
proposed rule change, as amended, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(l).
\2\ 17 CFR 240. 19b-4.
\3\ 17 CFR 240.19b-4(e).
\4\ In Amendment No. 1, Amex revised the proposed rule text and
clarified certain aspects of its proposal.
\5\ See Securities Exchange Act Release No. 54595 (October 12,
2006), 71 FR 61811.
\6\ See letter from Ira P. Shapiro, Principal and Associate
General Counsel, Barclays Global Investors (``BGI''), dated October
29, 2006 (``BGI Comment Letter'').
\7\ In Amendment No. 2, Amex clarified the nature of its
surveillance procedures applicable to ETFs that may be listed and
traded pursuant to the proposed rule change.
---------------------------------------------------------------------------
II. Description of Proposal
As explained more fully in the notice of the proposed rule change,
the Exchange proposes to revise Amex Rules 1000 and 1000A to include
generic listing standards for series of PDRs and IFSs that are based on
international or global indexes.\8\ Additionally, the Exchange proposes
to revise Amex Rules 1000 and 1000A to include generic listing
standards for PDRs and IFSs (PDRs and IFSs together referred to as
``exchange-traded funds'' or ``ETFs'') that are based on indexes or
portfolios previously approved by the Commission as an underlying
benchmark for the trading of PDRs, IFSs, options or other specified
index-based securities. Finally, Amex proposes other minor clarifying
changes to Amex Rules 1000, 1002, 1000A and 1002A.\9\
---------------------------------------------------------------------------
\8\ 8 Amex Rules 1000 et seq. allow for the listing and trading
on the Exchange of PDRs, which represent interests in a unit
investment trust registered under the Investment Company Act of 1940
(``1940 Act'') that operates on an open-end basis and that holds the
securities that comprise an index or portfolio. Amex Rules 1000A et
seq. provide standards for the listing and trading of IFSs, which
are securities issued by an open-end management investment company
based on a portfolio of stocks or fixed income securities that seeks
to provide investment results that correspond generally to the price
and yield performance of a specified foreign or domestic stock index
or fixed income securities index.
\9\ The standards set out in Commentary .03(a)(A) to Rule 1000
and Commentary .02(a)(A) to Rule 1000A are being modified to make
the wording of each requirement consistent; in addition, standard
(5) of these Commentaries has been modified to reflect the
Commission's adoption of Regulation NMS, 17 CFR 242.600 et seq.
Proposed Commentary .03(b)(iv) to Rule 1000 and Commentary
.02(b)(iv) to Rule 1000A have been added to require that entities
that advise index providers or calculators and related entities have
in place procedures designed to prevent the use and dissemination of
material non-public information regarding the index underlying the
ETF.
---------------------------------------------------------------------------
Specifically, the Exchange proposes to revise Commentary .03 to
Rule 1000 and Commentary .02 to Rule 1000A to include generic listing
standards for series of ETFs that are based on international or global
indexes, or on indexes previously approved by the Commission under
Section 19(b)(2) of the Exchange Act for the trading of ETFs, options
or other index-based securities. This proposal will enable the Exchange
to list and trade ETFs pursuant to Rule 19b-4(e) \10\ of the Exchange
Act if each of the conditions set forth in Commentary .03 to Rule 1000
or Commentary .02 to Rule 1000A is satisfied. 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 paragraph (c)(1) of Rule 19b-4, if the
Commission has approved, pursuant to Section 19(b) of the Exchange 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.\11\
---------------------------------------------------------------------------
\10\ 17 CFR 240.19b-4(e).
\11\ When relying on Rule 19b-4(e), the SRO must submit Form
19b-4(e) to the Commission within five business days after the SRO
begins trading the new derivative securities products. See
Securities Exchange Act Release No. 40761 (December 8, 1998), 63 FR
70952 (December 22, 1998).
---------------------------------------------------------------------------
To list a PDR or an IFS pursuant to the proposed generic listing
standards for international or global indexes, the index underlying the
PDR or IFS must satisfy all the conditions in Commentary .03 to Rule
1000 (for PDRs) or proposed Commentary .02 to Rule 1000A (for IFSs). As
with the existing generic listing standards for ETFs based on domestic
indexes, the Exchange states that these generic listing standards are
intended to ensure that stocks with substantial market capitalization
and trading volume account for a substantial portion of the weight of
an index or portfolio.
As proposed, the definition section of each of Rule 1000 and Rule
1000A would be revised to include definitions of U.S. Component Stock
and Non-US Component Stock. These new definitions would provide the
basis for the standards for indexes with either domestic or
international stocks, or a combination of both. A ``Non-US Component
Stock'' would mean an equity security issued by an entity that: (a) Is
not organized, domiciled or incorporated in the United States; (b) is
not registered under Section 12(b) or 12(g) of the Exchange Act; and
(c) is an operating company (including Real Estate Investment Trusts
(REITS) and income trusts, but excluding investment trusts, unit
trusts, mutual funds, and derivatives). This definition is designed to
create a category of component stocks that are issued by companies that
are not based in the U.S., but that also are not subject to oversight
through Commission registration, and would include sponsored Global
Depositary Receipts (``GDRs'') and European Depositary Receipts
(``EDRs''). A ``US Component Stock'' would mean an equity security that
is registered under Section 12(b) or 12(g) of the Exchange Act.
The Exchange proposes that to list an ETF based on an international
or global index or portfolio pursuant to the generic listing standards,
such index or portfolio must meet the following criteria:
Component stocks that in the aggregate account for at
least 90% of the weight of the index or portfolio shall have a minimum
market value \12\ of at least $100 million (Rule 1000, Commentary
.03(a)(B)(1) and Rule 1000A, Commentary .02(a)(B)(1)); \13\
---------------------------------------------------------------------------
\12\ The Exchange stated for purposes of this filing that
``market value'' is calculated by multiplying the total shares
outstanding by the price per share of the component stock.
\13\ The BGI Comment Letter notes that certain no-action relief
provided by Commission staff under the Exchange Act (the ``ETF No-
Action Letters'') uses a public float standard, rather than this
market value standard, and suggests consistency. The Exchange notes
that the ETF No-Action Letters address separate regulatory
objectives but is willing to examine modifications to its listing
standards in the future. Telephone conference among Marija Willen,
Vice President and Associate General Counsel, Amex, Scott Ebner,
Vice President, Amex, Florence Harmon, Senior Special Counsel,
Division of Market Regulation (``Division''), Commission, and Brian
Trackman, Special Counsel, Division, Commission, on November 6, 2006
(``November 6 Telephone Conference'').
---------------------------------------------------------------------------
Component stocks representing at least 90% of the weight
of the index or portfolio shall have a minimum worldwide monthly
trading volume \14\
[[Page 66995]]
during each of the last six months of at least 250,000 shares \15\
(Rule 1000, Commentary .03(a)(B)(2) and Rule 1000A, Commentary
.02(a)(B)(2)); \16\
---------------------------------------------------------------------------
\14\ The BGI Comment Letter requested clarification that
``worldwide monthly trading volume'' includes any shares underlying
American Depositary Receipts (``ADRs'') traded in the U.S. In
response, the Exchange states that any trading of shares represented
by ADRs, GDRs, or EDRs, which are traded on a market with last sale
reporting, would be included in the calculation of worldwide monthly
trading volume. See November 6 Telephone Conference, supra note 13.
\15\ The BGI Comment Letter asserts that it would be less
arbitrary to measure trading volume in terms of dollars rather than
shares. The Exchange notes that the share trading volume criteria is
consistent with the existing generic listing standards for ETFs
based on domestic indexes and other listing standards for derivative
products, and the Commission believes the Exchange's choice is
consistent with the Act. Nevertheless, the Exchange is willing to
examine the dollar volume criteria in the future. See November 6
Telephone Conference, supra note 13.
\16\ 16 The BGI Comment Letter notes that the ETF No-Action
Letters measure liquidity of components in the index or portfolio
differently than Amex's proposed rules measure liquidity. The
Exchange notes that the ETF No-Action Letters address separate
regulatory objectives but is willing to examine modifications to its
listing standards in the future. See November 6 Telephone
Conference, supra note 13.
---------------------------------------------------------------------------
The most heavily weighted component stock may not exceed
25% of the weight of the index or portfolio and the five most heavily
weighted component stocks may not exceed 60% of the weight of the index
or portfolio (Rule 1000, Commentary .03(a)(B)(3) and Rule 1000A,
Commentary .02(a)(B)(3));
The index or portfolio shall include a minimum of 20
component stocks (Rule 1000, Commentary .03(a)(B)(4) and Rule 1000A,
Commentary .02(a)(B)(4)); and
Each US Component Stock in the index or portfolio shall be
listed on a national securities exchange and shall be an NMS Stock as
defined in Rule 600 of Regulation NMS under the Exchange Act, and each
Non-US Component Stock in the index or portfolio shall be listed on an
exchange that has last-sale reporting (Rule 1000, Commentary
.03(a)(B)(5) and Rule 1000A, Commentary .02(a)(B)(5)).\17\
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\17\ The BGI Comment Letter questioned which non-U.S. exchanges
have systems for ``last-sale reporting.'' In this regard, the
Exchange states, when considering whether an ETF meets its listing
standards, that it will use several methods to determine whether a
non-U.S. exchange has last-sale reporting. For example, the Exchange
states that it will evaluate whether execution prices are available
for transactions in securities listed and traded on such exchange.
The Exchange further states that last-sale reporting is easily
verified through major market data vendors and other entities. In
addition, the Exchange states that many index providers have
policies to include index components only from foreign exchanges
where pricing, transaction reporting, and corporate news are
sufficiently transparent and widely disseminated. See November 6
Telephone Conference, supra note 13.
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The Exchange also proposes to include in the generic listing
standards for the listing of ETFs, in new Commentary .03(a)(C) to Rule
1000 and Commentary .02(a)(C) to Rule 1000A, indexes that have been
approved by the Commission as underlying benchmarks in connection with
the listing of options, PDRs, IFSs, Index-Linked Exchangeable Notes, or
Index-Linked Securities.\18\
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\18\ BGI questions requiring comprehensive surveillance sharing
agreements (``CSSAs'') with the home country market for the
underlying index components in proposed Commentary .03(a)(C) to Amex
Rule 1000 and Commentary .02(a)(C) to Amex Rule 1000A. The standards
set out in paragraph (B) of both Commentaries do not require a CSSA
with the home country market because they provide for minimum levels
of liquidity, concentration and pricing transparency for index
components. If an ETF is based on an index whose components do not
satisfy these composition criteria, it may be listed pursuant to
paragraph (C) of both Commentaries if the Commission has previously
approved the index or portfolio in connection with the listing and
trading of another derivative product. To the extent that the
Commission's approval of that index or portfolio required CSSAs,
that requirement must also be satisfied. See November 6 Telephone
Conference, supra note 13.
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The Exchange also proposes to modify Commentary .03(b)(iii) to Rule
1000 and Commentary .02(b)(iii) to Rule 1000A to require that the index
value for all ETFs listed pursuant to the proposed standards for
international and global indexes (or otherwise approved by the
Commission) be widely disseminated by one or more major market data
vendors at least every 60 seconds during the time when the ETF trades
on the Exchange. If the index value does not change during some or all
of the period when trading is occurring on the Exchange, the last
official calculated index value must remain available throughout
Exchange trading hours. Index values for ETFs listed pursuant to the
standards for domestic indexes (or otherwise approved by the
Commission) must be disseminated at least every 15 seconds during the
trading day. The proposed modification to this requirement for ETFs
based on international or global indexes reflects that, in some
instances, the frequency of intra-day trading information is limited
with respect to Non-US Component Stocks and that, in many cases,
trading hours for overseas markets overlap only in part, or not at all,
with Exchange trading hours.
In addition, Commentary .03(c) to Rule 1000 and Commentary .02(c)
to Rule 1000A are being modified to define the term ``Intraday
Indicative Value'' as the estimate that is updated at least every 15
seconds of the value of a share of each ETF, for ease of reference in
these rules. A similar change is also proposed in Rules 1002 and 1002A,
which are the continued listing standards for these and other ETFs. The
Exchange also proposes to clarify in Commentary .03(c) to Rule 1000 and
Commentary .02(c) to Rule 1000A that the Intraday Indicative Value will
be updated during the hours the ETF shares trade on the Exchange to
reflect changes in the exchange rate between the U.S. dollar and the
currency in which any component stock is denominated for all ETFs based
on global or international indexes.
The Exchange is also proposing to add a subsection (i) to
Commentary .03 to Rule 1000 and a subsection (j) to Commentary .02 to
Rule 1000A regarding the creation and redemption process for ETFs and
compliance with Federal securities laws for ETFs listed pursuant to the
generic listing standards for international and global indexes. These
new subsections will apply to PDRs listed pursuant to Commentary
.03(a)(B) or (C) and for IFSs listed pursuant to Commentary .02(a)(B)
or (C).
For the listing and trading of all ETFs, whether or not by generic
listing standards, the Exchange is also proposing to include
additional, continued listing standards relating to ETFs that
substitute new indexes, either in the instance where the value of the
index or portfolio of securities on which the ETF is based is no longer
calculated or available, or in the event that the ETF chooses to
substitute a new index or portfolio for the existing index or
portfolio. In both instances, the Exchange would commence delisting
proceedings if the new index or portfolio does not meet the standards
set forth in Rules 1000 et seq. or Rules 1000A et seq., as
applicable.\19\ If, for example, an ETF chose to substitute an index
that did not meet any of the generic listing standards for listing of
[[Page 66996]]
ETFs pursuant to Rule 19b-4(e),\20\ then for continued listing,
approval by the Commission of a separate filing pursuant to Section
19(b)(2) \21\ to list and trade that ETF would be required.\22\
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\19\ The BGI Comment Letter requested clarification of when an
index is ``no longer calculated or available'' and in such event,
why a ``substantially similar'' substituted index could not satisfy
the dissemination requirements of the listing standards. In
response, the Exchange notes that many indexes change components
periodically based on a specified methodology. Index turnover,
consistent with such an index methodology, may not constitute an
index substitution triggering possible delisting of the ETF.
However, if the index underlying the ETF is substituted with a new
index or the specified index methodology is substantially changed
from the announced methodology under which the product was listed,
the Exchange acknowledges that it must either file a new Form 19b-
4(e) or the listing and trading of the derivative product is a
proposed rule change pursuant to Section 19(b)(2) of the Exchange
Act, 15 U.S.C. 78s(b)(2). See November 6 Telephone Conference, supra
note 13.
\20\ 17 CFR 240.19b-4(e).
\21\ 15 U.S.C. 78s(b)(2).
\22\ The Exchange notes that this is not a new requirement under
the Exchange Act. The Exchange acknowledges that transparency of the
index methodology is necessary for effective pricing of the
derivative product and investor protection. See November 6 Telephone
Conference, supra note 13.
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The Exchange proposes to modify the initial and continued listing
standards for all ETFs relating to disseminated information to
formalize in the rules existing best practices for providing equal
access to material information about the value of ETFs. Pursuant to
Rules 1002(a)(ii) and 1002A(a)(ii), prior to approving an ETF for
listing, the Exchange will obtain a representation from the ETF issuer
that the net asset value (``NAV'') per share will be calculated daily
and made available to all market participants at the same time.
In addition, proposed Rules 1002(b)(ii) and 1002A(b)(ii) establish
that if the Intraday Indicative Value (as defined in Commentary .03 to
Rule 1000 and Commentary .02 to Rule 1000A) or the index value
applicable to that series of ETFs is not being disseminated as
required, the Exchange may halt trading during the day in which the
interruption to the dissemination of the Intraday Indicative Value or
the index value occurs. If the interruption to the dissemination of the
Intraday Indicative Value or the index value persists past the trading
day in which it occurred, the Exchange will halt trading no later than
the beginning of the trading day following the interruption.
With regard to trading, ETFs listed under the proposed standards
will be subject to Amex rules and procedures that govern the trading of
ETFs and the trading of equity securities on the Amex, including among
others, rules and procedures governing trading halts, disclosures to
members, responsibilities of the specialist, account opening and
customer suitability requirements, the election of a stop or limit
order, and margin.\23\
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\23\ See Amex Rules 1000 through 1006 and 1000A through 1005A.
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The Exchange represents that its surveillance procedures are
adequate to properly monitor the trading of the PDRs and IFSs listed
pursuant to the proposed new listing standards. Specifically, the Amex
will rely on its existing surveillance procedures governing PDRs and
IFSs. In addition, the Exchange has a general policy prohibiting the
distribution of material, non-public information by its employees.
III. Discussion and Commission Findings
After careful review, including consideration of the BGI Comment
Letter, the Commission finds that the proposed rule change, as amended,
is consistent with the requirements of the Exchange Act, in general,
and the rules and regulations thereunder applicable to a national
securities exchange.\24\ In particular, the Commission finds that the
proposed rule change, as amended, is consistent with Section 6(b)(5) of
the Exchange Act,\25\ 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 mechanism of a free and open
market and a national market system, and, in general, to protect
investors and the public interest.
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\24\ In approving this 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).
\25\ 15 U.S.C. 78f(b)(5).
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Generic Listing Standards for Exchange-Traded Funds
To list ETFs based on international or global indexes, or on
indexes or portfolios previously approved by the Commission as an
underlying benchmark for a derivative security, the Amex currently must
file a proposed rule change with the Commission pursuant to Section
19(b)(1) of the Exchange Act and Rule 19b-4 thereunder. However, Rule
19b-4(e) provides that the listing and trading of a new derivative
securities product by a SRO will not be deemed a proposed rule change
pursuant to Rule 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
derivative securities product, and the SRO has a surveillance program
for the product class. The Exchange's proposed rules for the listing
and trading of ETFs based on international or global indexes pursuant
to Rule 19b-4(e) fulfills these requirements.
The Amex's ability to rely on Rule 19b-4(e) to list ETFs that meet
the requirements of Commentary .03 to Amex Rule 1000 or Commentary .02
to Amex Rule 1000A potentially reduces the time frame for bringing
these securities to the market, thereby reducing the burdens on issuers
and other market participants and promoting competition and making ETFs
based on global or international indexes available to investors more
quickly.
The Commission has previously approved generic listing standards
pursuant to Rule 19b-4(e) \26\ of the Exchange Act for ETFs based on
indexes that consist of stocks listed and traded on U.S. exchanges.\27\
The Commission has also previously approved the listing and trading by
the Exchange of several ETFs based on a variety of international and
global market indexes.\28\ In approving these securities for Exchange
trading, the Commission considered applicable Amex rules that govern
their trading. The Commission believes that generic listing standards
for these securities should fulfill the intended objective of Rule 19b-
4(e) under the Act \29\ and allow those ETFs that satisfy the generic
listing standards to commence trading without the need for public
comment and Commission approval.\30\
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\26\ 17 CFR 240.19b-4(e).
\27\ See Commentary .03 to Amex Rule 1000 and Commentary .02 to
Amex Rule 1000A. See also Securities Exchange Act Release No. 42787
(May 15, 2000), 65 FR 33598 (May 24, 2000).
\28\ See, e.g., Securities Exchange Act Release Nos. 50189
(August 12, 2004), 69 FR 51723 (August 20, 2004) (approving the
listing and trading of certain Vanguard International Equity Index
Funds); 44700 (August 14, 2001), 66 FR 43927 (August 21, 2001)
(approving the listing and trading of series of the iShares Trust
based on certain S&P global indexes). Likewise, the Commission has
approved listing standards that permit the listing and trading of
index-based derivative securities where the same index had been
considered in connection with the Commission's approval of another
derivative security. See, e.g., Amex Company Guide Section 107D
(Index-Linked Securities), Securities Exchange Act Release No. 51563
(April 15, 2005), 70 FR 21257 (April 25, 2005).
\29\ 17 CFR 240.19b-4(e).
\30\ The Commission notes that the failure of a particular index
to comply with the proposed generic listing standards under Rule
19b-4(e), however, would not preclude the Exchange from submitting a
separate filing pursuant to Section 19(b)(2), requesting Commission
approval to list and trade a particular index-linked product.
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ETF Listing and Trading
The Commission finds that the Amex proposal contains adequate rules
and procedures to govern the listing of ETFs based on international or
global indexes listed pursuant to Rule 19b-4(e) on the Exchange or
trading pursuant to unlisted trading privileges (``UTP'').\31\
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\31\ An exchange trading ETFs pursuant to UTP must comply with
applicable trading rules and surveillance requirements for the
derivative product. See Securities Exchange Act Release No. 35637
(April 21, 1995), 60 FR 20891 (April 28, 1995).
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As proposed, Commentary .03 to Amex Rule 1000 and Commentary .02 to
Amex Rule 1000A establish standards
[[Page 66997]]
for the composition of an index or portfolio underlying an ETF. These
requirements are designed, among other things, to require that
components of an index or portfolio underlying an ETF are adequately
capitalized and sufficiently liquid, and that no one stock dominates
the index.
Taken together, the Commission finds that these standards are
reasonably designed to ensure that stocks with substantial market
capitalization and trading volume account for a substantial portion of
any underlying index or portfolio, and that when applied in conjunction
with the other applicable listing requirements, will permit the listing
only of ETFs that are sufficiently broad-based in scope to minimize
potential manipulation. Similarly, the Commission finds that the
proposed listing standards are designed to preclude ETFs from becoming
surrogates for trading in unregistered securities. The Commission
further believes that the requirement that each component security
underlying an ETF be listed on an exchange and subject to last-sale
reporting should contribute to the transparency of the market for ETFs.
The proposed generic listing standards will, alternatively, permit
listing of an ETF if the Commission has previously approved the
underlying index for trading in connection with another derivative
product and the underlying index or portfolio constituents are all
either U.S. Component Stocks, which must be listed on a national
securities exchange and be an NMS stock as defined in Rule 600(b)(47)
of Regulation NMS under the Act,\32\ or Non-US Component Stocks listed
on an exchange that has last-sale reporting.\33\ The Commission
believes that if it has previously determined that such index and its
components were sufficiently transparent, then the Exchange may rely on
this finding, provided that the Exchange complies with the rules and
conditions set forth by the Commission in its prior approval order,
including surveillance sharing arrangements with the foreign market, if
any.\34\
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\32\ 17 CFR 242.600(b)(47).
\33\ See proposed Commentary .03(a)(C) to Amex Rule 1000 and
Commentary .02(a)(C) to Amex Rule 1000A.
\34\ The Commission notes that it has taken this position
connection with listing standards for ILSs. See supra note 28.
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Regardless of whether the ETF is listed and/or traded pursuant to
these generic listing standards, the Exchange's proposal also requires
the value of an index or portfolio underlying an ETF based on a global
or international index to be disseminated at least once every 60
seconds.\35\ In addition, an Intraday Indicative Value, which
represents an estimate of the value of a share of each ETF, must be
updated and disseminated at least once every 15 seconds during the time
an ETF trades on the Exchange.\36\ The Commission believes that by
requiring pricing information for both the relevant underlying index
\37\ and the ETF to be readily available and disseminated, the proposal
is designed to ensure a fair and orderly market for ETFs listed and
traded pursuant to Amex Rules 1000 and 1000A.
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\35\ See proposed Commentary .03(b)(iii) to Amex Rule 1000 and
Commentary .02(b)(iii) to Amex Rule 1000A. To the extent an index or
portfolio value does not change during some of the time that a
foreign ETF trades on the Exchange, the last official calculated
value must remain available throughout Exchange trading hours.
\36\ See Commentary .03(c) to Amex Rule 1000 and Commentary
.02(c) to Amex Rule 1000A. The Intraday Indicative Value will be
updated to reflect changes in the exchange rate between the U.S.
dollar and the currency in which any index or portfolio component
stock is denominated.
\37\ The requirement contemplates that one composite index value
would be disseminated in accordance with this rule for any ETF based
on several indexes.
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The Exchange proposes continued listing standards for all ETFs,
whether listed pursuant to generic listing standards or by Commission
approval of the specific product. In the event that an underlying index
or portfolio value is no longer calculated on at least a 15 second
basis or is substituted with an index that does not meet the applicable
requirements, the Exchange will commence delisting proceedings. The
Commission believes that this is an important safeguard to help assure
that ETFs listed and traded on the Exchange meet applicable listing
standards on an ongoing basis and do not, for example, trade without
key pricing information available.
The Commission notes that each ETF will be required to represent
that it will calculate and make available daily the NAV to all market
participants at the same time. Furthermore, proposed Amex Rules
1002(b)(ii) and 1000A(b)(ii) require that, if the Intraday Indicative
Value or index value applicable to an ETF is not disseminated as
required, the Exchange may halt trading during the day in which the
interruption occurs. If the interruption continues, then the Exchange
will halt trading no later than the beginning of the next trading day.
Similarly, if the Exchange deems further dealings in the product
inadvisable, trading will be halted. The Commission believes that the
delisting criteria, NAV dissemination requirements, and trading halt
rules will help ensure an appropriate level of transparency exists with
respect to each foreign ETF to allow for the maintenance of fair and
orderly markets.
Surveillance
The Commission notes that any foreign ETFs approved for listing and
trading would be subject to Amex's existing surveillance program for
ETFs, which the Exchange has represented are adequate to properly
monitor the trading of ETFs listed pursuant to these proposed generic
listing standards.
Acceleration
The Commission finds good cause for approving the proposed rule
change, as amended, prior to the 30th day after the date of publication
of the notice of filing in the Federal Register. The Exchange has
requested accelerated approval of the proposal to facilitate the prompt
listing and trading of ETFs based on global or international indexes or
portfolios meeting the specified criteria and ETFs based on indexes or
portfolios underlying derivative securities that were previously
approved by the Commission. The Commission notes that the Exchange's
listing standards are based, in part, on previously approved ETF
listing standards relating to indexes or portfolios made up of U.S.
Component Stocks or on Commission orders approving the listing and
trading of ETFs based on global or international indexes. The
Commission believes that accelerated approval of the proposal should
expedite the listing and trading of additional ETFs, subject to
consistent and reasonable standards, to the benefit of the investing
public. Therefore, the Commission finds good cause, consistent with
Section 19(b)(2) of the Act,\38\ to approve the proposed rule change on
an accelerated basis.
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\38\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 2
is consistent with the Act. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Amex-2006-78 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary,
[[Page 66998]]
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549-1090.
All submissions should refer to File Number SR-Amex-2006-78. 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 (https://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 office of the Amex. 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-Amex-2006-78 and should be submitted on or before
December 8, 2006.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\39\ that the proposed rule change (SR-Amex-2006-78), as modified
by Amendments No. 1 and 2, is hereby approved on an accelerated basis.
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\39\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation, pursuant
to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
Nancy M. Morris,
Secretary.
[FR Doc. E6-19415 Filed 11-16-06; 8:45 am]
BILLING CODE 8011-01-P
