Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to Generic Listing Standards for Series of Portfolio Depositary Receipts and Index Fund Shares Based on Fixed Income Indexes, 5768-5772 [E7-1998]
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The Commission notes that Nuveen,
because it selects the components for
the Index, has represented to Amex that
it prohibits individuals at Nuveen who
will be privy to information about future
changes to the Nuveen Municipal Fund
Index rules or constituent stocks from
trading on that information, for their
own benefit or for the benefit of
Nuveen’s clients. Additionally, Nuveen
has represented that it has firewalls
around the personnel who have access
to information concerning changes and
adjustments to the Index. Additionally,
the Commission notes that Amex will
incorporate and rely upon its existing
surveillance procedures governing
index options, which it states are
adequate to deter as well as detect any
potential manipulation.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,14 that the
proposed rule change (SR–Amex–2006–
19), as modified by Amendment Nos. 1,
2 and 3, be, and hereby is, approved.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.15
Nancy M. Morris,
Secretary.
[FR Doc. E7–1937 Filed 2–6–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–55213; File No. SR–Amex–
2006–118]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing of Proposed Rule Change and
Amendment No. 1 Thereto Relating to
Generic Listing Standards for Series of
Portfolio Depositary Receipts and
Index Fund Shares Based on Fixed
Income Indexes
sroberts on PROD1PC70 with NOTICES
January 31, 2007.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
22, 2006, the American Stock Exchange
LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared substantially by the
Exchange. On January 26, 2007, the
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(l).
2 17 CFR 240.19b–4.
15 17
21:36 Feb 06, 2007
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to revise
Amex Rules 1000 and 1000A to include
generic listing standards for series of
portfolio depositary receipts (‘‘PDRs’’)
and index fund shares (‘‘IFSs’’) (together
referred to as ‘‘exchange-traded funds’’
or ‘‘ETFs’’) that are based on fixed
income indexes or indexes consisting of
both equity and fixed income securities
(‘‘combination indexes’’).
The text of the proposed rule change
is available at the Amex, at the
Commission’s Public Reference Room,
and on the Exchange’s Web site at
www.amex.com.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Amex included statements concerning
the purpose of, and basis for, the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. The Exchange has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to add
Commentaries .04, .05, and .06 to Amex
Rule 1000 and Commentaries .03, .04,
and .05 to Amex Rule 1000A to include
generic listing standards for series of
PDRs and IFSs that are based on fixed
income indexes or combination indexes.
These generic listing standards would
be applicable to fixed income indexes
and combination indexes that the
Commission has yet to review as well as
those fixed income indexes described in
exchange rule changes that have
previously been approved by the
Commission under Section 19(b)(2) of
the Act for the trading of ETFs, options,
or other index-based securities. The
3 In Amendment No. 1, the Exchange modified
the proposed rule text and corresponding
description of its proposal. Amendment No. 1
replaced and superseded the original filing in its
entirety.
14 15
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Exchange filed Amendment No. 1.3 The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
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Exchange also proposes to amend Amex
Rules 1000(b)(1) and 1000A(b)(1) to
revise the definitions of PDR and IFS to
include ETFs based on fixed income
indexes and combination indexes. This
proposal would enable the Exchange to
list and trade ETFs pursuant to Rule
19b–4(e) under the Act 4 if each of the
conditions set forth in either
Commentaries .04 and .05 to Rule 1000
or Commentaries .03 and .04 to Rule
1000A, as applicable, are satisfied.
Background
Exchange-Traded Funds. Amex Rules
1000 et seq. allow for the listing and
trading on the Exchange of PDRs. A PDR
represents an interest in a unit
investment trust registered under the
Investment Company Act of 1940 (the
‘‘1940 Act’’) 5 that operates on an openend basis and which holds the securities
that comprise an index or portfolio.
Amex Rules 1000A et seq. provide
standards for listing IFSs, which are
securities issued by an open-end
management investment company (i.e.,
an open-end mutual fund) based on a
portfolio of securities that seeks to
provide investment results that
correspond generally to the price and
yield performance or total return
performance of a specified foreign or
domestic stock index or fixed income
index. Pursuant to Rules 1000 et seq.
and 1000A et seq., PDRs or IFSs must
be issued in a specified aggregate
minimum number in return for a
deposit of specified securities and/or a
cash amount, with a value equal to the
next determined net asset value. When
aggregated in the same specified
minimum number, PDRs or IFSs must
be redeemed by the issuer for the
securities and/or cash, with a value
equal to the next determined net asset
value. Consistent with Amex Rules 1002
and 1002A, the net asset value is
calculated once a day after the close of
the regular trading day.
To meet the investment objective of
providing investment returns that
correspond to the performance of the
underlying index, an ETF may use a
‘‘replication’’ strategy or a
‘‘representative sampling’’ strategy with
respect to the ETF portfolio. An ETF
using a replication strategy will invest
in each component security of the
underlying index in about the same
proportion as that security is
represented in the index itself. An ETF
using a representative sampling strategy
will generally invest in a significant
number, but perhaps not all, of the
component securities of the underlying
4 17
5 15
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CFR 240.19b–4(e).
U.S.C. 80a.
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index, and will hold securities that, in
the aggregate, are intended to
approximate the full index in terms of
certain key characteristics. In the
context of a fixed income index, such
characteristics may include liquidity,
duration, maturity, and yield.
In addition, an ETF portfolio may be
adjusted in accordance with changes in
the composition of the underlying index
or to maintain compliance with
requirements applicable to a regulated
investment company under the Internal
Revenue Code (‘‘IRC’’).6
Generic Listing Standards for
Exchange-Traded Funds. The Exchange
notes that the Commission has
previously approved generic listing
standards contemplated by Rule 19b–
4(e) under the Act for ETFs based on
indexes that consist of stocks listed on
U.S. and non-U.S. exchanges.7 This
proposal seeks to adopt generic listing
standards for fixed income and
combination indexes that generally
reflect existing generic listing standards
for equities, but are tailored for the fixed
income markets.
The Exchange notes that the
Commission has previously approved
the listing and trading of ETFs based on
certain fixed income indexes 8 as well as
structured notes linked to a basket or
index of fixed income securities.9 In
addition, the Commission has also
approved listing standards for other
index-based derivatives that permit the
listing—pursuant to Rule 19b–4(e)—of
such securities where the Commission
had previously approved the trading of
specified index-based derivatives on the
same index, on the condition that all of
the standards set forth in the original
order are satisfied by the exchange
employing generic listing standards.10
The Exchange believes that adopting
additional generic listing standards for
ETFs based on fixed income indexes
and applying Rule 19b–4(e) should
fulfill the intended objective of that rule
by allowing those ETFs that satisfy the
proposed generic listing standards to
commence trading, without the need for
individualized Commission approval.
The proposed rules have the potential to
reduce the time frame for bringing ETFs
to market, thereby reducing the burdens
on issuers and other market
participants. The Exchange submits that
the failure of a particular ETF to comply
with the proposed generic listing
standards would not, however, preclude
the Exchange from submitting a separate
filing pursuant to Section 19(b)(2)
requesting Commission approval to list
and trade a particular ETF.
6 For an ETF to qualify for tax treatment as a
regulated investment company, it must meet several
requirements under the IRC. Among these is the
requirement that, at the close of each quarter of the
ETF’s taxable year, (i) At least 50% of the market
value of the ETF’s total assets must be represented
by cash items, U.S. government securities,
securities of other regulated investment companies,
and other securities, with such other securities
limited for purposes of this calculation in respect
of any one issuer to an amount not greater than 5%
of the value if the ETF’s assets and not greater than
10% of the outstanding voting securities of such
issuer; and (ii) not more than 25% of the value of
its total assets may be invested in the securities of
any one issuer, or two or more issuers that are
controlled by the ETF (within the meaning of
Section 851(b)(4)(B) of the IRC) and that are
engaged in the same or similar trades or businesses
or related trades or business (other than U.S.
government securities or the securities of other
regulated investment companies).
7 See Securities Exchange Act Release Nos. 54739
(November 9, 2006), 71 FR 66993 (November 17,
2006) (for ETFs based on global and international
indexes) and 42787 (May 15, 2000), 65 FR 33598
(May 24, 2000) (for ETFs based on indexes
comprised of U.S. stocks).
8 See Securities Exchange Act Release Nos. 46252
(July 24, 2002), 67 FR 49715 (July 31, 2002)
(approving the listing and trading of funds based on
U.S. Treasury or corporate bond indexes); 46738
(October 29, 2002), 67 FR 67666 (November 6, 2002)
(approving the listing and trading of FITRS) and
52870 (December 1, 2005), 70 FR 73039 (December
8, 2005) (approving the trading on a UTP basis of
the iShares Lehman TIPS Bond Fund).
9 See Securities Exchange Act Release Nos. 41334
(April 27, 1999), 64 FR 23883 (May 4, 1999)
(approving the listing and trading of Bond Indexed
Term Notes); 46923 (November 27, 2002), 67 FR
Requirements for Listing and Trading
ETFs Based on Fixed Income Indexes.
Exchange-traded funds listed pursuant
to the proposed generic listing standards
for fixed income indexes would be
traded, in all other respects, under the
Exchange’s existing trading rules and
procedures that apply to ETFs and
would be covered under the Exchange’s
surveillance program for ETFs.11 The
Exchange represents that its
surveillance procedures are adequate to
properly monitor the trading of ETFs
listed pursuant to the proposed new
listing standards. In addition, the
Exchange also has a general policy
prohibiting the distribution of material,
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21:36 Feb 06, 2007
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Fixed Income and Combination Index
ETFs
72247 (December 4, 2002) (approving the listing
and trading of trust units linked to a basket of
investment-grade fixed income securities); 48484
(September 11, 2003), 68 FR 54508 (September 17,
2003) (approving the listing and trading of trust
certificates linked to a basket of up to five
investment-grade fixed income securities plus U.S.
Treasury securities); and 50355 (September 13,
2004), 69 FR 56252 (September 20, 2004)
(approving generic listing standards for trust
certificates linked to portfolios of investment grade
securities and U.S. Treasury securities).
10 See Amex Company Guide Section 107D
(Index-Linked Securities); Securities Exchange Act
Release No. 51563 (April 15, 2005), 70 FR 21257
(April 25, 2005).
11 See Amex Rules 1000 through 1006 and 1000A
through 1005A.
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5769
non-public information by its
employees.
In order to list an ETF pursuant to the
proposed generic listing standards for
fixed income indexes, the index
underlying the ETF must satisfy all the
conditions contained in proposed
Commentary .04 to Rule 1000 (for PDRs)
or proposed Commentary .03 to Rule
1000A (for IFSs). As with existing
generic listing standards for ETFs based
on domestic and international or global
indexes, the proposed generic listing
standards are intended to ensure that
fixed income securities with substantial
market distribution and liquidity
account for a substantial portion of the
weight of an index or portfolio. While
the standards in this proposal are
loosely based on the standards
contained in Commission and
Commodity Futures Trading
Commission (‘‘CFTC’’) rules regarding
the application of the definition of
narrow-based security index to debt
security indexes 12 as well as existing
fixed income ETFs, they have been
adapted as appropriate to apply
generally to fixed income indexes for
ETFs.
Fixed Income Securities
As proposed, Commentary .04 to Rule
1000 and Commentary .03 to Rule
1000A define the term ‘‘Fixed Income
Securities’’ to include notes, bonds
(including convertible bonds),
debentures, or evidence of indebtedness
that include, but are not limited to, U.S.
Treasury securities (‘‘Treasury
Securities’’), government-sponsored
entity securities (‘‘GSE Securities’’),
municipal securities, trust-preferred
securities,13 supranational debt,14 and
debt of a foreign country or subdivision
thereof. This new definition is designed
to create a category of ETFs based on
12 See Securities Exchange Act Release No. 54106
(July 6, 2006), 71 FR 39534 (July 13, 2006) (File No.
S7–07–06) (the ‘‘Joint Rules’’).
13 Trust-preferred securities are undated
cumulative securities issued from a special purpose
trust in which a bank or bank holding company
owns all of the common securities. The trust’s sole
asset is a subordinated note issued by the bank or
bank holding company. Trust preferred securities
are treated as debt for tax purposes so that the
distributions or dividends paid are a tax-deductible
interest expense.
14 Supranational debt represents the debt of
international organizations such as the World Bank,
the International Monetary Fund, regional
multilateral development banks, and multilateral
financial institutions. Examples of regional
multilateral development banks include the African
Development Bank, Asian Development Bank,
European Bank for Reconstruction and
Development, and the Inter-American Development
Bank. In addition, examples of multilateral
financial institutions include the European
Investment Bank and the International Fund for
Agricultural Development.
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Federal Register / Vol. 72, No. 25 / Wednesday, February 7, 2007 / Notices
fixed income indexes that may be listed
and traded pursuant to Rule 19b–4(e)
under the Act.
For purposes of the proposed
definition, a convertible bond is deemed
to be a Fixed Income Security up until
the time that it is converted into its
underlying common or preferred
stock.15 Once converted, the equity
security may no longer continue as a
component of a fixed income index
under the proposed rules, and
accordingly, would have to be removed
from such index for the ETF to remain
listed pursuant to proposed
Commentary .04 to Rule 1000 or
Commentary .03 to Rule 1000A.
The Exchange proposes that, to list an
ETF based on a fixed income index
pursuant to the generic standards, the
index must meet the following criteria:
• The index or portfolio must consist
of Fixed Income Securities;
• Components that in aggregate
account for at least 75% of the weight
of the index or portfolio must have a
minimum original principal amount
outstanding of $100 million or more;
• No component Fixed Income
Security (excluding a Treasury Security)
represents more than 30% of the weight
of the index, and the five highest
weighted component fixed income
securities in the index do not in the
aggregate account for more than 65% of
the weight of the index;
• An underlying index or portfolio
(excluding one consisting entirely of
exempted securities) must include a
minimum of 13 non-affiliated issuers;
and
• Component securities that in
aggregate account for at least 90% of the
weight of the index or portfolio must be
either:
➢ From issuers that are required to
file reports pursuant to Sections 13 and
15(d) of the Act; 16
➢ From issuers that have a
worldwide market value of its
outstanding common equity held by
non-affiliates of $700 million or more;
➢ From issuers that have outstanding
securities that are notes, bonds,
debentures, or evidences of
indebtedness having a total remaining
principal amount of at least $1 billion;
➢ Exempted securities, as defined in
Section 3(a)(12) of the Act; 17 or
➢ From issuers that are governments
of foreign countries or political
subdivisions of foreign countries.
The Exchange believes that these
proposed component criteria standards
are reasonable for fixed income indexes,
and, when applied in conjunction with
the other listing requirements, would
result in ETFs that are sufficiently
broad-based in scope and not readily
susceptible to manipulation.
The Exchange notes that the proposed
standards are similar to the standards
set forth by the Commission and the
CFTC in the Joint Rules as well as
existing fixed-income-based ETFs. First,
in the proposed standards, component
fixed income securities that in the
aggregate account for at least 75% of the
weight of the index or portfolio would
have to have a minimum original
principal amount outstanding of at least
$100 million. This is virtually identical
to the corresponding standard in
Section 107E(a)(x) of the Amex
Company Guide for trust certificates.
Second, in the proposed standards, the
most heavily weighted component stock
cannot exceed 30% of the weight of the
index or portfolio, consistent with the
standard for U.S. equity ETFs set forth
in Commentaries .03(a)(A) to Rule 1000
and .02(a)(A) to Rule 1000A. In
addition, this standard is identical to
the standard set forth by the
Commission and the CFTC in the Joint
Rules.18 Third, in the proposed
standards, the five most heavily
weighted component securities could
not exceed 65% of the weight of the
index or portfolio, consistent with the
standard for U.S. equity ETFs set forth
in Commentaries .03(a)(A) to Rule 1000
and .02(a)(A) to Rule 1000A as well as
the Joint Rules. Fourth, the minimum
number of fixed income securities
(except for portfolios consisting entirely
of exempted securities, such as Treasury
Securities or GSEs) from unaffiliated 19
issuers in the proposed standards is 13,
consistent with the standard for U.S.
equity ETFs set forth in Commentaries
.03(a)(A) to Rule 1000 and .02(a)(A) to
Rule 1000A and the Joint Rules. This
requirement together with the
diversification standards set forth above
17 15
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15 The
Exchange notes that, under the Section
3(a)(11) of the Act, 15 U.S.C. 78c(a)(11), a
convertible security is defined as an equity security.
However, for the purpose of the proposed generic
listing criteria, Amex believes that defining a
convertible security (prior to its conversion) as a
Fixed Income Security is consistent with the
objectives and intention of the generic listing
standards for fixed-income-based ETFs as well as
the Act.
16 15 U.S.C. 78m and 78o(d).
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21:36 Feb 06, 2007
Jkt 211001
U.S.C. 78c(a)(12).
note 12 supra.
19 Rule 405 under the Securities Act of 1933, 17
CFR 230.405, defines an affiliate as a person that
directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is
under common control with, such person. Control,
for this purpose, is the possession, direct or
indirect, of the power to direct or cause the
direction of the management and policies of a
person, whether through the ownership of voting
securities, by contract, or otherwise.
18 See
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would provide assurance that the fixed
income securities comprising an index
would not be overly dependent on the
price behavior of a single component or
small group of components.
Finally, the proposed standards
would require that at least 90% of the
weight of the index or portfolio must be
either (i) From issuers that are required
to file reports pursuant to Sections 13
and 15(d) of the Act; 20 (ii) from issuers
that have a worldwide market value of
its outstanding common equity held by
non-affiliates of $700 million or more;
(iii) from issuers that have outstanding
securities that are notes, bonds,
debentures, or evidences of
indebtedness having a total remaining
principal amount of at least $1 billion;
(iv) exempted securities, as defined in
Section 3(a)(12) of the Act; 21 or (v) from
issuers that are governments of foreign
countries or political subdivisions of
foreign countries. This proposed
standard is consistent with a similar
standard in the Joint Rules and is
designed to ensure that the component
fixed income securities have sufficient
publicly available information.
The proposed generic listing
requirements for fixed income ETFs
would not require that component
securities in an underlying index have
an investment-grade rating.22 In
addition, the proposed requirements
would not require a minimum trading
volume, due to the lower trading
volume that generally occurs in the
fixed income markets as compared to
the equity markets. However, the
Exchange submits that the minimum
principal amount outstanding
requirement of $100 million, coupled
with the proposed concentration
requirements, would severely reduce
the likelihood that an ETF listed under
the proposal would be readily
susceptible to manipulation. In all
cases, Multiple or Inverse ETFs, which
are considered for listing pursuant to
Rule 1000A(b)(2), may not be the subject
of these proposed generic listing
standards.
Requirements for Listing and Trading
ETFs Based on Combination Indexes.
The Exchange also seeks to list and
trade ETFs based on a combination of
equity and fixed income securities or a
composite index that would consist of
an equity index and fixed income index
(collectively, ‘‘combination indexes’’).
An ETF listed pursuant to the generic
standards for combination indexes
would be traded, in all other respects,
under the Exchange’s existing trading
20 15
U.S.C. 78m and 78o(d).
U.S.C. 78c(a)(12).
22 See Joint Rules, 71 FR at 30538.
21 15
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rules and procedures that apply to ETFs
and would be covered under the
Exchange’s surveillance program for
ETFs.23
To list an ETF pursuant to the
proposed generic listing standards for
combination indexes, an index
underlying a PDR or IFS must satisfy all
the conditions contained in proposed
Commentary .05 to Rule 1000 (for PDRs)
or proposed Commentary .04 to Rule
1000A (for IFSs). These generic listing
standards are intended to ensure that
securities with substantial market
distribution and liquidity account for a
substantial portion of the weight of both
the equity and fixed income portions of
an index or portfolio.
Proposed Commentaries .05 to Rule
1000 and .04 to Rule 1000A would
provide that the Exchange may approve
series of PDRs and IFSs—based on a
combination of indexes or a series of
component securities representing the
U.S. or domestic equity market, the
international equity market, and the
fixed income market—for listing and
trading pursuant to Rule 19b–4(e) under
the Act. The standards that an ETF
would have to comply with are as
follows: (i) Such portfolio or
combination of indexes has been
described in exchange rule changes
reviewed and approved for the trading
of options, PDRs, IFSs, Index-Linked
Exchangeable Notes, or Index-Linked
Securities by the Commission under
Section 19(b)(2) of the Act, and all of the
standards set forth in the original order
are satisfied by the exchange employing
generic listing standards; or (ii) the
equity portion and fixed income portion
of the component securities separately
meet the criteria set forth in
Commentary .03 (equities) and proposed
Commentary .04 (fixed income) for
PDRs and Commentary .02 (equities)
and proposed Commentary .03 (fixed
income) for IFSs. In all cases, however,
Multiple or Inverse ETFs, which are
considered for listing pursuant to Rule
1000A(b)(2), may not be the subject of
these proposed generic listing
standards.
Index Methodology and
Dissemination. The Exchange proposes
to adopt Commentaries .04(b) and .05(a)
to Rule 1000 and Commentaries .03(b)
and .04(a) to Rule 1000A to establish
requirements for index methodology
and dissemination in connection with
fixed income and combination indexes.
If a broker-dealer is responsible for
maintaining (or has a role in
maintaining) the underlying index, such
broker-dealer would be required to erect
23 See Amex Rules 1000 through 1006 and 1000A
through 1005A.
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21:36 Feb 06, 2007
Jkt 211001
and maintain a ‘‘firewall,’’ in a form
satisfactory to the Exchange, to prevent
the flow of non-public information
regarding the underlying index from the
personnel involved in the development
and maintenance of such index to others
such as sales and trading personnel.
With respect to index dissemination,
the Exchange proposes to adopt
Commentaries .04(b)(iii) and .05(a)(iii)
to Rule 1000 and Commentaries
.03(b)(iii) and .04(a)(iii) to Rule 1000A
to require that the index value for an
ETF listed pursuant to the proposed
standards for fixed income be widely
disseminated by one or more major
market data vendors at least once a day
during the time when the ETF shares
trade 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. This reflects the nature of
the fixed income markets as well as the
frequency of intra-day trading
information with respect to fixed
income indexes. To the extent that an
ETF is based on a combination index,
the index would have to be widely
disseminated by one or more major
market data vendors at least every 15
seconds during the time when the ETF
shares trade on the Exchange to reflect
updates for the prices of the equity
securities included in the combination
index. The fixed income portion of the
combination index would have to be
updated at least daily.
Application of General Rules.
Commentaries .06 to Rule 1000 and .05
to Rule 1000A would be added to
identify those characteristics of ETFs
that would apply to all such series of
PDRs or IFSs based on fixed income or
combination indexes. This would
include the dissemination of the
Intraday Indicative Value, an estimate of
the value of a share of each ETF,
updated at least every 15 seconds. In
addition, proposed Commentaries .05 to
Rule 1000 and .06 to Rule 1000A would
set forth the requirements for PDRs or
IFSs relating to initial shares
outstanding, minimum price variation,
listing fees, surveillance procedures,
and the application of PDR or IFS rules,
as applicable.
The Exchange states that the
Commission has approved generic
standards providing for the listing
pursuant to Rule 19b–4(e) of other
derivative products based on indexes
described in rule changes previously
approved by the Commission under
Section 19(b)(2) of the Act. The
Exchange proposes to include in the
generic standards for the listing of PDRs
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Sfmt 4703
5771
and IFSs based on fixed income and
combination indexes, in new
Commentary .04 to Rule 1000 and
Commentary .03 to Rule 1000A, indexes
that have been approved by the
Commission in connection with the
listing of options, Portfolio Depository
Receipts, Index Fund Shares, IndexLinked Exchangeable Notes, or IndexLinked Securities. The Exchange
believes that the application of that
standard to ETFs is appropriate because
the underlying index would have been
subject to detailed and specific
Commission review in the context of the
approval of listing of other
derivatives.24
The Exchange notes that existing
Rules 1002 and 1002A provide
continued listing standards for all PDRs
and IFSs. For example, where the value
of the underlying 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, the
Exchange would commence delisting
proceedings if the new index or
portfolio does not meet the
requirements of and listing standards set
forth in Rules 1000 et seq. or Rules
1000A et seq., as applicable. If an ETF
chose to substitute an index that did not
meet any of the generic listing standards
for listing of ETFs pursuant to Rule 19b–
4(e) under the Act, then for continued
listing and trading, approval by the
Commission of a separate filing
pursuant to Section 19(b)(2) to list and
trade that ETF would be required. The
Exchange further notes that existing
Amex Rules 1002(a)(ii) and 1002A(a)(ii)
provide that, before approving an ETF
for listing, the Exchange will obtain a
representation from the ETF issuer that
the net asset value per share will be
calculated daily and made available to
all market participants at the same time.
The trading halt requirements for
existing ETFs will similarly apply to
fixed income and combination index
ETFs. In particular, Rules 1002(b)(ii)
and 1002A(b)(iv) provide that, if the
Intraday Indicative Value 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
24 See
E:\FR\FM\07FEN1.SGM
supra notes 7 and 9.
07FEN1
5772
Federal Register / Vol. 72, No. 25 / Wednesday, February 7, 2007 / Notices
IV. Solicitation of Comments
of the trading day following the
interruption.25
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 26 in general, and furthers the
objectives of Section 6(b)(5) of the Act 27
in particular, in that it is designed to
promote just and equitable principles of
trade; to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities; to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system.
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Amex–2006–118 on the
subject line.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Paper Comments
The Exchange believes that the
proposed rule change would impose no
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–1090.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has neither solicited
nor received comments on this
proposal.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
sroberts on PROD1PC70 with NOTICES
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission will:
(A) By order approve such proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
The Amex has requested accelerated
approval of the proposed rule change.
The Commission had determined that a
public notice and comment period is
appropriate.
25 If an ETF is traded on the Exchange pursuant
to unlisted trading privileges, the Exchange would
halt trading if the primary listing market halts
trading in such ETF because the Intraday Indicative
Value and/or the index value is not being
disseminated. See Securities Exchange Act Release
No. 55018 (December 28, 2006), 72 FR 1040
(January 9, 2007) (SR Amex–2006–109).
26 15 U.S.C. 78f(b).
27 15 U.S.C. 78f(b)(5).
VerDate Aug<31>2005
21:36 Feb 06, 2007
Jkt 211001
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.28
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–1998 Filed 2–6–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–55197; File No. SR–BSE–
2007–02]
Self-Regulatory Organizations; Boston
Stock Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change To Amend the
Boston Options Exchange Fee
Schedule
January 30, 2007.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January
22, 2007, the Boston Stock Exchange,
Inc. (‘‘BSE’’ or ‘‘Exchange’’) filed with
All submissions should refer to File
the Securities and Exchange
Number SR–Amex–2006–118. This file
Commission (‘‘Commission’’) the
number should be included on the
proposed rule change as described in
subject line if e-mail is used. To help the
Items I, II, and III below, which Items
Commission process and review your
have been substantially prepared by the
comments more efficiently, please use
BSE. The BSE has designated this
only one method. The Commission will proposal as one establishing or changing
post all comments on the Commission’s a due, fee, or other charge imposed by
Internet Web site (https://www.sec.gov/
the BSE under Section 19(b)(3)(A)(ii) of
rules/sro.shtml). Copies of the
the Act,3 and Rule 19b–4(f)(2)
submission, all subsequent
thereunder,4 which renders the proposal
amendments, all written statements
effective upon filing with the
with respect to the proposed rule
Commission. The Commission is
change that are filed with the
publishing this notice to solicit
Commission, and all written
comments on the proposed rule change
from interested persons.
communications relating to the
proposed rule change between the
I. Self-Regulatory Organization’s
Commission and any person, other than Statement of the Terms of Substance of
those that may be withheld from the
the Proposed Rule Change
public in accordance with the
The Exchange proposes the following
provisions of 5 U.S.C. 552, will be
changes to the Fee Schedule for the
available for inspection and copying in
Boston Options Exchange (‘‘BOX’’). The
the Commission’s Public Reference
first proposed change to the Fee
Room. Copies of such filing also will be
Schedule relates to the Penny Pilot
available for inspection and copying at
Program.5 This proposed change will
the principal office of Amex. All
allow BOX to introduce lower fees for
comments received will be posted
those instruments that are included in
without change; the Commission does
the Penny Pilot Program, which trade in
not edit personal identifying
increments of one cent. The second
information from submissions. You
proposed change is to amend the Fee
should submit only information that
Schedule to permanently eliminate a fee
you wish to make available publicly. All that is currently waived. Finally, the
submissions should refer to File
28 17 CFR 200.30–3(a)(12).
Number SR–Amex–2006–118 and
1 15 U.S.C. 78s(b)(1).
should be submitted on or before
2 17 CFR 240.19b–4.
February 22, 2007.
3
PO 00000
15 U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
5 See Securities Exchange Release No. 54789
(November 20, 2006), 71 FR 68654 (November 27,
2006) (SR–BSE–2006–49).
4 17
Frm 00098
Fmt 4703
Sfmt 4703
E:\FR\FM\07FEN1.SGM
07FEN1
]]>Agencies
[Federal Register Volume 72, Number 25 (Wednesday, February 7, 2007)]
[Notices]
[Pages 5768-5772]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-1998]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55213; File No. SR-Amex-2006-118]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto
Relating to Generic Listing Standards for Series of Portfolio
Depositary Receipts and Index Fund Shares Based on Fixed Income Indexes
January 31, 2007.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 22, 2006, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared substantially by the
Exchange. On January 26, 2007, the Exchange filed Amendment No. 1.\3\
The Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(l).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Exchange modified the proposed rule
text and corresponding description of its proposal. Amendment No. 1
replaced and superseded the original filing in its entirety.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to revise Amex Rules 1000 and 1000A to
include generic listing standards for series of portfolio depositary
receipts (``PDRs'') and index fund shares (``IFSs'') (together referred
to as ``exchange-traded funds'' or ``ETFs'') that are based on fixed
income indexes or indexes consisting of both equity and fixed income
securities (``combination indexes'').
The text of the proposed rule change is available at the Amex, at
the Commission's Public Reference Room, and on the Exchange's Web site
at www.amex.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Amex included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to add Commentaries .04, .05, and .06 to Amex
Rule 1000 and Commentaries .03, .04, and .05 to Amex Rule 1000A to
include generic listing standards for series of PDRs and IFSs that are
based on fixed income indexes or combination indexes. These generic
listing standards would be applicable to fixed income indexes and
combination indexes that the Commission has yet to review as well as
those fixed income indexes described in exchange rule changes that have
previously been approved by the Commission under Section 19(b)(2) of
the Act for the trading of ETFs, options, or other index-based
securities. The Exchange also proposes to amend Amex Rules 1000(b)(1)
and 1000A(b)(1) to revise the definitions of PDR and IFS to include
ETFs based on fixed income indexes and combination indexes. This
proposal would enable the Exchange to list and trade ETFs pursuant to
Rule 19b-4(e) under the Act \4\ if each of the conditions set forth in
either Commentaries .04 and .05 to Rule 1000 or Commentaries .03 and
.04 to Rule 1000A, as applicable, are satisfied.
---------------------------------------------------------------------------
\4\ 17 CFR 240.19b-4(e).
---------------------------------------------------------------------------
Background
Exchange-Traded Funds. Amex Rules 1000 et seq. allow for the
listing and trading on the Exchange of PDRs. A PDR represents an
interest in a unit investment trust registered under the Investment
Company Act of 1940 (the ``1940 Act'') \5\ that operates on an open-end
basis and which holds the securities that comprise an index or
portfolio. Amex Rules 1000A et seq. provide standards for listing IFSs,
which are securities issued by an open-end management investment
company (i.e., an open-end mutual fund) based on a portfolio of
securities that seeks to provide investment results that correspond
generally to the price and yield performance or total return
performance of a specified foreign or domestic stock index or fixed
income index. Pursuant to Rules 1000 et seq. and 1000A et seq., PDRs or
IFSs must be issued in a specified aggregate minimum number in return
for a deposit of specified securities and/or a cash amount, with a
value equal to the next determined net asset value. When aggregated in
the same specified minimum number, PDRs or IFSs must be redeemed by the
issuer for the securities and/or cash, with a value equal to the next
determined net asset value. Consistent with Amex Rules 1002 and 1002A,
the net asset value is calculated once a day after the close of the
regular trading day.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 80a.
---------------------------------------------------------------------------
To meet the investment objective of providing investment returns
that correspond to the performance of the underlying index, an ETF may
use a ``replication'' strategy or a ``representative sampling''
strategy with respect to the ETF portfolio. An ETF using a replication
strategy will invest in each component security of the underlying index
in about the same proportion as that security is represented in the
index itself. An ETF using a representative sampling strategy will
generally invest in a significant number, but perhaps not all, of the
component securities of the underlying
[[Page 5769]]
index, and will hold securities that, in the aggregate, are intended to
approximate the full index in terms of certain key characteristics. In
the context of a fixed income index, such characteristics may include
liquidity, duration, maturity, and yield.
In addition, an ETF portfolio may be adjusted in accordance with
changes in the composition of the underlying index or to maintain
compliance with requirements applicable to a regulated investment
company under the Internal Revenue Code (``IRC'').\6\
---------------------------------------------------------------------------
\6\ For an ETF to qualify for tax treatment as a regulated
investment company, it must meet several requirements under the IRC.
Among these is the requirement that, at the close of each quarter of
the ETF's taxable year, (i) At least 50% of the market value of the
ETF's total assets must be represented by cash items, U.S.
government securities, securities of other regulated investment
companies, and other securities, with such other securities limited
for purposes of this calculation in respect of any one issuer to an
amount not greater than 5% of the value if the ETF's assets and not
greater than 10% of the outstanding voting securities of such
issuer; and (ii) not more than 25% of the value of its total assets
may be invested in the securities of any one issuer, or two or more
issuers that are controlled by the ETF (within the meaning of
Section 851(b)(4)(B) of the IRC) and that are engaged in the same or
similar trades or businesses or related trades or business (other
than U.S. government securities or the securities of other regulated
investment companies).
---------------------------------------------------------------------------
Generic Listing Standards for Exchange-Traded Funds. The Exchange
notes that the Commission has previously approved generic listing
standards contemplated by Rule 19b-4(e) under the Act for ETFs based on
indexes that consist of stocks listed on U.S. and non-U.S.
exchanges.\7\ This proposal seeks to adopt generic listing standards
for fixed income and combination indexes that generally reflect
existing generic listing standards for equities, but are tailored for
the fixed income markets.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release Nos. 54739 (November 9,
2006), 71 FR 66993 (November 17, 2006) (for ETFs based on global and
international indexes) and 42787 (May 15, 2000), 65 FR 33598 (May
24, 2000) (for ETFs based on indexes comprised of U.S. stocks).
---------------------------------------------------------------------------
The Exchange notes that the Commission has previously approved the
listing and trading of ETFs based on certain fixed income indexes \8\
as well as structured notes linked to a basket or index of fixed income
securities.\9\ In addition, the Commission has also approved listing
standards for other index-based derivatives that permit the listing--
pursuant to Rule 19b-4(e)--of such securities where the Commission had
previously approved the trading of specified index-based derivatives on
the same index, on the condition that all of the standards set forth in
the original order are satisfied by the exchange employing generic
listing standards.\10\
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release Nos. 46252 (July 24,
2002), 67 FR 49715 (July 31, 2002) (approving the listing and
trading of funds based on U.S. Treasury or corporate bond indexes);
46738 (October 29, 2002), 67 FR 67666 (November 6, 2002) (approving
the listing and trading of FITRS) and 52870 (December 1, 2005), 70
FR 73039 (December 8, 2005) (approving the trading on a UTP basis of
the iShares Lehman TIPS Bond Fund).
\9\ See Securities Exchange Act Release Nos. 41334 (April 27,
1999), 64 FR 23883 (May 4, 1999) (approving the listing and trading
of Bond Indexed Term Notes); 46923 (November 27, 2002), 67 FR 72247
(December 4, 2002) (approving the listing and trading of trust units
linked to a basket of investment-grade fixed income securities);
48484 (September 11, 2003), 68 FR 54508 (September 17, 2003)
(approving the listing and trading of trust certificates linked to a
basket of up to five investment-grade fixed income securities plus
U.S. Treasury securities); and 50355 (September 13, 2004), 69 FR
56252 (September 20, 2004) (approving generic listing standards for
trust certificates linked to portfolios of investment grade
securities and U.S. Treasury securities).
\10\ See Amex Company Guide Section 107D (Index-Linked
Securities); Securities Exchange Act Release No. 51563 (April 15,
2005), 70 FR 21257 (April 25, 2005).
---------------------------------------------------------------------------
The Exchange believes that adopting additional generic listing
standards for ETFs based on fixed income indexes and applying Rule 19b-
4(e) should fulfill the intended objective of that rule by allowing
those ETFs that satisfy the proposed generic listing standards to
commence trading, without the need for individualized Commission
approval. The proposed rules have the potential to reduce the time
frame for bringing ETFs to market, thereby reducing the burdens on
issuers and other market participants. The Exchange submits that the
failure of a particular ETF to comply with the proposed generic listing
standards would not, however, preclude the Exchange from submitting a
separate filing pursuant to Section 19(b)(2) requesting Commission
approval to list and trade a particular ETF.
Fixed Income and Combination Index ETFs
Requirements for Listing and Trading ETFs Based on Fixed Income
Indexes. Exchange-traded funds listed pursuant to the proposed generic
listing standards for fixed income indexes would be traded, in all
other respects, under the Exchange's existing trading rules and
procedures that apply to ETFs and would be covered under the Exchange's
surveillance program for ETFs.\11\ The Exchange represents that its
surveillance procedures are adequate to properly monitor the trading of
ETFs listed pursuant to the proposed new listing standards. In
addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
---------------------------------------------------------------------------
\11\ See Amex Rules 1000 through 1006 and 1000A through 1005A.
---------------------------------------------------------------------------
In order to list an ETF pursuant to the proposed generic listing
standards for fixed income indexes, the index underlying the ETF must
satisfy all the conditions contained in proposed Commentary .04 to Rule
1000 (for PDRs) or proposed Commentary .03 to Rule 1000A (for IFSs). As
with existing generic listing standards for ETFs based on domestic and
international or global indexes, the proposed generic listing standards
are intended to ensure that fixed income securities with substantial
market distribution and liquidity account for a substantial portion of
the weight of an index or portfolio. While the standards in this
proposal are loosely based on the standards contained in Commission and
Commodity Futures Trading Commission (``CFTC'') rules regarding the
application of the definition of narrow-based security index to debt
security indexes \12\ as well as existing fixed income ETFs, they have
been adapted as appropriate to apply generally to fixed income indexes
for ETFs.
---------------------------------------------------------------------------
\12\ See Securities Exchange Act Release No. 54106 (July 6,
2006), 71 FR 39534 (July 13, 2006) (File No. S7-07-06) (the ``Joint
Rules'').
---------------------------------------------------------------------------
Fixed Income Securities
As proposed, Commentary .04 to Rule 1000 and Commentary .03 to Rule
1000A define the term ``Fixed Income Securities'' to include notes,
bonds (including convertible bonds), debentures, or evidence of
indebtedness that include, but are not limited to, U.S. Treasury
securities (``Treasury Securities''), government-sponsored entity
securities (``GSE Securities''), municipal securities, trust-preferred
securities,\13\ supranational debt,\14\ and debt of a foreign country
or subdivision thereof. This new definition is designed to create a
category of ETFs based on
[[Page 5770]]
fixed income indexes that may be listed and traded pursuant to Rule
19b-4(e) under the Act.
---------------------------------------------------------------------------
\13\ Trust-preferred securities are undated cumulative
securities issued from a special purpose trust in which a bank or
bank holding company owns all of the common securities. The trust's
sole asset is a subordinated note issued by the bank or bank holding
company. Trust preferred securities are treated as debt for tax
purposes so that the distributions or dividends paid are a tax-
deductible interest expense.
\14\ Supranational debt represents the debt of international
organizations such as the World Bank, the International Monetary
Fund, regional multilateral development banks, and multilateral
financial institutions. Examples of regional multilateral
development banks include the African Development Bank, Asian
Development Bank, European Bank for Reconstruction and Development,
and the Inter-American Development Bank. In addition, examples of
multilateral financial institutions include the European Investment
Bank and the International Fund for Agricultural Development.
---------------------------------------------------------------------------
For purposes of the proposed definition, a convertible bond is
deemed to be a Fixed Income Security up until the time that it is
converted into its underlying common or preferred stock.\15\ Once
converted, the equity security may no longer continue as a component of
a fixed income index under the proposed rules, and accordingly, would
have to be removed from such index for the ETF to remain listed
pursuant to proposed Commentary .04 to Rule 1000 or Commentary .03 to
Rule 1000A.
---------------------------------------------------------------------------
\15\ The Exchange notes that, under the Section 3(a)(11) of the
Act, 15 U.S.C. 78c(a)(11), a convertible security is defined as an
equity security. However, for the purpose of the proposed generic
listing criteria, Amex believes that defining a convertible security
(prior to its conversion) as a Fixed Income Security is consistent
with the objectives and intention of the generic listing standards
for fixed-income-based ETFs as well as the Act.
---------------------------------------------------------------------------
The Exchange proposes that, to list an ETF based on a fixed income
index pursuant to the generic standards, the index must meet the
following criteria:
The index or portfolio must consist of Fixed Income
Securities;
Components that in aggregate account for at least 75% of
the weight of the index or portfolio must have a minimum original
principal amount outstanding of $100 million or more;
No component Fixed Income Security (excluding a Treasury
Security) represents more than 30% of the weight of the index, and the
five highest weighted component fixed income securities in the index do
not in the aggregate account for more than 65% of the weight of the
index;
An underlying index or portfolio (excluding one consisting
entirely of exempted securities) must include a minimum of 13 non-
affiliated issuers; and
Component securities that in aggregate account for at
least 90% of the weight of the index or portfolio must be either:
[rtarr8] From issuers that are required to file reports pursuant to
Sections 13 and 15(d) of the Act; \16\
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78m and 78o(d).
---------------------------------------------------------------------------
[rtarr8] From issuers that have a worldwide market value of its
outstanding common equity held by non-affiliates of $700 million or
more;
[rtarr8] From issuers that have outstanding securities that are
notes, bonds, debentures, or evidences of indebtedness having a total
remaining principal amount of at least $1 billion;
[rtarr8] Exempted securities, as defined in Section 3(a)(12) of the
Act; \17\ or
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78c(a)(12).
---------------------------------------------------------------------------
[rtarr8] From issuers that are governments of foreign countries or
political subdivisions of foreign countries.
The Exchange believes that these proposed component criteria
standards are reasonable for fixed income indexes, and, when applied in
conjunction with the other listing requirements, would result in ETFs
that are sufficiently broad-based in scope and not readily susceptible
to manipulation.
The Exchange notes that the proposed standards are similar to the
standards set forth by the Commission and the CFTC in the Joint Rules
as well as existing fixed-income-based ETFs. First, in the proposed
standards, component fixed income securities that in the aggregate
account for at least 75% of the weight of the index or portfolio would
have to have a minimum original principal amount outstanding of at
least $100 million. This is virtually identical to the corresponding
standard in Section 107E(a)(x) of the Amex Company Guide for trust
certificates. Second, in the proposed standards, the most heavily
weighted component stock cannot exceed 30% of the weight of the index
or portfolio, consistent with the standard for U.S. equity ETFs set
forth in Commentaries .03(a)(A) to Rule 1000 and .02(a)(A) to Rule
1000A. In addition, this standard is identical to the standard set
forth by the Commission and the CFTC in the Joint Rules.\18\ Third, in
the proposed standards, the five most heavily weighted component
securities could not exceed 65% of the weight of the index or
portfolio, consistent with the standard for U.S. equity ETFs set forth
in Commentaries .03(a)(A) to Rule 1000 and .02(a)(A) to Rule 1000A as
well as the Joint Rules. Fourth, the minimum number of fixed income
securities (except for portfolios consisting entirely of exempted
securities, such as Treasury Securities or GSEs) from unaffiliated \19\
issuers in the proposed standards is 13, consistent with the standard
for U.S. equity ETFs set forth in Commentaries .03(a)(A) to Rule 1000
and .02(a)(A) to Rule 1000A and the Joint Rules. This requirement
together with the diversification standards set forth above would
provide assurance that the fixed income securities comprising an index
would not be overly dependent on the price behavior of a single
component or small group of components.
---------------------------------------------------------------------------
\18\ See note 12 supra.
\19\ Rule 405 under the Securities Act of 1933, 17 CFR 230.405,
defines an affiliate as a person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or
is under common control with, such person. Control, for this
purpose, is the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by
contract, or otherwise.
---------------------------------------------------------------------------
Finally, the proposed standards would require that at least 90% of
the weight of the index or portfolio must be either (i) From issuers
that are required to file reports pursuant to Sections 13 and 15(d) of
the Act; \20\ (ii) from issuers that have a worldwide market value of
its outstanding common equity held by non-affiliates of $700 million or
more; (iii) from issuers that have outstanding securities that are
notes, bonds, debentures, or evidences of indebtedness having a total
remaining principal amount of at least $1 billion; (iv) exempted
securities, as defined in Section 3(a)(12) of the Act; \21\ or (v) from
issuers that are governments of foreign countries or political
subdivisions of foreign countries. This proposed standard is consistent
with a similar standard in the Joint Rules and is designed to ensure
that the component fixed income securities have sufficient publicly
available information.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78m and 78o(d).
\21\ 15 U.S.C. 78c(a)(12).
---------------------------------------------------------------------------
The proposed generic listing requirements for fixed income ETFs
would not require that component securities in an underlying index have
an investment-grade rating.\22\ In addition, the proposed requirements
would not require a minimum trading volume, due to the lower trading
volume that generally occurs in the fixed income markets as compared to
the equity markets. However, the Exchange submits that the minimum
principal amount outstanding requirement of $100 million, coupled with
the proposed concentration requirements, would severely reduce the
likelihood that an ETF listed under the proposal would be readily
susceptible to manipulation. In all cases, Multiple or Inverse ETFs,
which are considered for listing pursuant to Rule 1000A(b)(2), may not
be the subject of these proposed generic listing standards.
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\22\ See Joint Rules, 71 FR at 30538.
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Requirements for Listing and Trading ETFs Based on Combination
Indexes. The Exchange also seeks to list and trade ETFs based on a
combination of equity and fixed income securities or a composite index
that would consist of an equity index and fixed income index
(collectively, ``combination indexes''). An ETF listed pursuant to the
generic standards for combination indexes would be traded, in all other
respects, under the Exchange's existing trading
[[Page 5771]]
rules and procedures that apply to ETFs and would be covered under the
Exchange's surveillance program for ETFs.\23\
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\23\ See Amex Rules 1000 through 1006 and 1000A through 1005A.
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To list an ETF pursuant to the proposed generic listing standards
for combination indexes, an index underlying a PDR or IFS must satisfy
all the conditions contained in proposed Commentary .05 to Rule 1000
(for PDRs) or proposed Commentary .04 to Rule 1000A (for IFSs). These
generic listing standards are intended to ensure that securities with
substantial market distribution and liquidity account for a substantial
portion of the weight of both the equity and fixed income portions of
an index or portfolio.
Proposed Commentaries .05 to Rule 1000 and .04 to Rule 1000A would
provide that the Exchange may approve series of PDRs and IFSs--based on
a combination of indexes or a series of component securities
representing the U.S. or domestic equity market, the international
equity market, and the fixed income market--for listing and trading
pursuant to Rule 19b-4(e) under the Act. The standards that an ETF
would have to comply with are as follows: (i) Such portfolio or
combination of indexes has been described in exchange rule changes
reviewed and approved for the trading of options, PDRs, IFSs, Index-
Linked Exchangeable Notes, or Index-Linked Securities by the Commission
under Section 19(b)(2) of the Act, and all of the standards set forth
in the original order are satisfied by the exchange employing generic
listing standards; or (ii) the equity portion and fixed income portion
of the component securities separately meet the criteria set forth in
Commentary .03 (equities) and proposed Commentary .04 (fixed income)
for PDRs and Commentary .02 (equities) and proposed Commentary .03
(fixed income) for IFSs. In all cases, however, Multiple or Inverse
ETFs, which are considered for listing pursuant to Rule 1000A(b)(2),
may not be the subject of these proposed generic listing standards.
Index Methodology and Dissemination. The Exchange proposes to adopt
Commentaries .04(b) and .05(a) to Rule 1000 and Commentaries .03(b) and
.04(a) to Rule 1000A to establish requirements for index methodology
and dissemination in connection with fixed income and combination
indexes.
If a broker-dealer is responsible for maintaining (or has a role in
maintaining) the underlying index, such broker-dealer would be required
to erect and maintain a ``firewall,'' in a form satisfactory to the
Exchange, to prevent the flow of non-public information regarding the
underlying index from the personnel involved in the development and
maintenance of such index to others such as sales and trading
personnel.
With respect to index dissemination, the Exchange proposes to adopt
Commentaries .04(b)(iii) and .05(a)(iii) to Rule 1000 and Commentaries
.03(b)(iii) and .04(a)(iii) to Rule 1000A to require that the index
value for an ETF listed pursuant to the proposed standards for fixed
income be widely disseminated by one or more major market data vendors
at least once a day during the time when the ETF shares trade 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. This reflects the nature of the fixed income markets as
well as the frequency of intra-day trading information with respect to
fixed income indexes. To the extent that an ETF is based on a
combination index, the index would have to be widely disseminated by
one or more major market data vendors at least every 15 seconds during
the time when the ETF shares trade on the Exchange to reflect updates
for the prices of the equity securities included in the combination
index. The fixed income portion of the combination index would have to
be updated at least daily.
Application of General Rules. Commentaries .06 to Rule 1000 and .05
to Rule 1000A would be added to identify those characteristics of ETFs
that would apply to all such series of PDRs or IFSs based on fixed
income or combination indexes. This would include the dissemination of
the Intraday Indicative Value, an estimate of the value of a share of
each ETF, updated at least every 15 seconds. In addition, proposed
Commentaries .05 to Rule 1000 and .06 to Rule 1000A would set forth the
requirements for PDRs or IFSs relating to initial shares outstanding,
minimum price variation, listing fees, surveillance procedures, and the
application of PDR or IFS rules, as applicable.
The Exchange states that the Commission has approved generic
standards providing for the listing pursuant to Rule 19b-4(e) of other
derivative products based on indexes described in rule changes
previously approved by the Commission under Section 19(b)(2) of the
Act. The Exchange proposes to include in the generic standards for the
listing of PDRs and IFSs based on fixed income and combination indexes,
in new Commentary .04 to Rule 1000 and Commentary .03 to Rule 1000A,
indexes that have been approved by the Commission in connection with
the listing of options, Portfolio Depository Receipts, Index Fund
Shares, Index-Linked Exchangeable Notes, or Index-Linked Securities.
The Exchange believes that the application of that standard to ETFs is
appropriate because the underlying index would have been subject to
detailed and specific Commission review in the context of the approval
of listing of other derivatives.\24\
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\24\ See supra notes 7 and 9.
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The Exchange notes that existing Rules 1002 and 1002A provide
continued listing standards for all PDRs and IFSs. For example, where
the value of the underlying 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, the Exchange would commence delisting
proceedings if the new index or portfolio does not meet the
requirements of and listing standards set forth in Rules 1000 et seq.
or Rules 1000A et seq., as applicable. If an ETF chose to substitute an
index that did not meet any of the generic listing standards for
listing of ETFs pursuant to Rule 19b-4(e) under the Act, then for
continued listing and trading, approval by the Commission of a separate
filing pursuant to Section 19(b)(2) to list and trade that ETF would be
required. The Exchange further notes that existing Amex Rules
1002(a)(ii) and 1002A(a)(ii) provide that, before approving an ETF for
listing, the Exchange will obtain a representation from the ETF issuer
that the net asset value per share will be calculated daily and made
available to all market participants at the same time.
The trading halt requirements for existing ETFs will similarly
apply to fixed income and combination index ETFs. In particular, Rules
1002(b)(ii) and 1002A(b)(iv) provide that, if the Intraday Indicative
Value 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
[[Page 5772]]
of the trading day following the interruption.\25\
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\25\ If an ETF is traded on the Exchange pursuant to unlisted
trading privileges, the Exchange would halt trading if the primary
listing market halts trading in such ETF because the Intraday
Indicative Value and/or the index value is not being disseminated.
See Securities Exchange Act Release No. 55018 (December 28, 2006),
72 FR 1040 (January 9, 2007) (SR Amex-2006-109).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \26\ in general, and furthers the objectives of Section
6(b)(5) of the Act \27\ in particular, in that it is designed to
promote just and equitable principles of trade; to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities; to remove impediments to and perfect the
mechanism of a free and open market and a national market system.
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\26\ 15 U.S.C. 78f(b).
\27\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposed rule change would impose no
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received comments on this
proposal.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
The Amex has requested accelerated approval of the proposed rule
change. The Commission had determined that a public notice and comment
period is appropriate.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Amex-2006-118 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Amex-2006-118. 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 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-2006-118 and should be submitted on or before February 22,
2007.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-1998 Filed 2-6-07; 8:45 am]
BILLING CODE 8010-01-P
