Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change to List and Trade Shares of the Four Funds of StateShares, Inc., 33264-33271 [E7-11552]

Download as PDF 33264 Federal Register / Vol. 72, No. 115 / Friday, June 15, 2007 / Notices All submissions should refer to File Number SR–NYSEArca–2007–44. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro/shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File number SR–NYSEArca–2007–44 and should be submitted on or before July 6, 2007. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.10 Nancy M. Morris, Secretary. [FR Doc. E7–11541 Filed 6–14–07; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55890; File No. SR– NYSEArca–2007–37] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change to List and Trade Shares of the Four Funds of StateShares, Inc. Each Fund is registered with the Commission under the 1940 Act as an open-end, non-diversified management investment company. Each Fund’s investment objective is to seek to track the performance, before fees and expenses, of a particular Underlying Index, as described more fully below. Each Fund focuses on a different geographic index. Under NYSE Arca Equities Rule 5.2(j)(3), the Exchange may list and/or I. Self-Regulatory Organization’s trade pursuant to unlisted trading Statement of the Terms of Substance of privileges (‘‘UTP’’) ‘‘Investment the Proposed Rule Change Company Units’’ (‘‘ICUs’’).4 The Funds do not meet the ‘‘generic’’ listing The Exchange proposes to list and requirements of NYSE Arca Equities trade shares (‘‘Shares’’) of the following Rule 5.2(j)(3) applicable to the listing of four funds (‘‘Funds’’) of StateSharesTM, ICUs pursuant to Rule 19b–4(e) under Inc. (‘‘Company’’) based on certain the Act,5 and thus cannot be listed underlying securities indexes without a filing made pursuant to Rule (‘‘Indexes’’ or the ‘‘Underlying 19b–4 under the Act.6 Specifically, the Indexes’’) pursuant to NYSE Arca Indexes underlying these four Shares do Equities Rule 5.2(j)(3): • StateSharesTM Georgia 50 Exchange- not meet the requirement of Commentary .01(a)(2) to NYSE Arca Traded Fund Equities Rule 5.2(j)(3) that, for • StateSharesTM North Carolina 50 component stocks representing at least Exchange-Traded Fund • StateSharesTM Virginia 50 90% of the weight of the Underlying Exchange-Traded Fund Index, each of such stocks has a • StateSharesTM Washington 50 minimum monthly trading volume Exchange-Traded Fund during each of the last six months of at The text of the proposed rule change least 250,000 shares.7 is available on the Exchange’s Web site Operation of the Funds. XShares at http://www.nyse.com, at the Advisors LLC, a subsidiary of XShares Exchange’s principal office, and at the Group LLC (‘‘XG’’) would be the investment adviser (‘‘Advisor’’) to the Commission’s Public Reference Room. Funds. The Advisor is registered as an II. Self-Regulatory Organization’s investment adviser under Section 203 of Statement of the Purpose of, and the Investment Advisers Act of 1940 Statutory Basis for, the Proposed Rule (‘‘Advisers Act’’).8 The Advisor would Change have overall responsibility for the In its filing with the Commission, the general management and administration Exchange included statements of each Fund, subject to the supervision concerning the purpose of, and basis for, of the Funds’ Board of Directors. Under the proposed rule change and discussed the Investment Advisory Agreement, the any comments it received on the Advisor would be responsible for proposed rule change. The text of these arranging sub-advisory, transfer agency, statements may be examined at the custody, fund administration, and all places specified in Item III below. The and accompanying Statement of Additional Exchange has prepared summaries, set Information (‘‘SAI’’) (File No. 333–139823) forth in Sections A, B, and C below, of (‘‘Registration Statement’’). The Company was the most significant aspects of such organized as a Maryland corporation on December statements. 26, 2006. Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by the Exchange. The Commission is publishing this notice and order to solicit comments on the proposed rule change from interested persons and to approve the proposed rule change on an accelerated basis. jlentini on PROD1PC65 with NOTICES June 8, 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 April 10, 2007, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’), through its wholly owned subsidiary NYSE Arca Equities, Inc. (‘‘NYSE Arca Equities’’), filed with the A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to list the Shares of the Funds. The Company is an investment company with 22 series of underlying fund portfolios and is registered under the Investment Company Act of 1940 (‘‘1940 Act’’).3 10 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form N–1A, as filed with the Commission on February 28, 2007 1 15 VerDate Aug<31>2005 19:26 Jun 14, 2007 Jkt 211001 PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 4 See Securities Exchange Act Release No. 41983 (October 6, 1999), 64 FR 56008 (October 15, 1999) (SR–PCX–1998–29) (approving NYSE Arca Equities Rule 5.2(j)(3)); Securities Exchange Act Release No. 44551 (July 12, 2001), 66 FR 37716 (July 19, 2001) (SR–PCX–2001–14) (approving generic listing standards for ICUs). 5 17 CFR 240.19b–4(e). 6 17 CFR 240.19b–4. 7 As of April 4, 2007, stocks with a monthly trading volume during each of the last six months of at least 250,000 shares represented 88.26%, 87.63%, 84.28%, and 89.34% of the weight of the S&P Custom/StateSharesTM Georgia 50 Index, S&P Custom/StateSharesTM North Carolina 50 Index, S&P Custom/StateSharesTM Virginia 50 Index, and S&P Custom/StateSharesTM Washington 50 Index, respectively. Source: Bloomberg. 8 15 U.S.C. 80b. E:\FR\FM\15JNN1.SGM 15JNN1 jlentini on PROD1PC65 with NOTICES Federal Register / Vol. 72, No. 115 / Friday, June 15, 2007 / Notices other non-distribution-related services for each Fund. The Advisor would also be responsible for employing any sampling strategy for each Fund. Pursuant to the Investment Advisory Agreement, the Advisor would be authorized to engage one or more subadvisors to perform any of the services contemplated to be performed by the Advisor under the Investment Advisory Agreement. BNY Investment Advisors (‘‘SubAdvisor’’), a separate identifiable division of The Bank of New York (‘‘BONY’’), a New York State banking corporation, would act as investment sub-advisor to each Fund. Pursuant to a Sub-Advisory Agreement between the Advisor and the Sub-Advisor, the SubAdvisor would be responsible for the day-to-day management of each Fund, subject to the supervision of the Advisor and the Funds’ Board of Directors. The Sub-Advisor would be responsible for implementing the replication strategy for each Fund with regard to its Underlying Index and for general administration, compliance, and management services, as may be agreed between the Advisor and the SubAdvisor from time to time. The Index Administrator. Standard & Poor’s is the index administrator (‘‘Index Administrator’’) and in that capacity has sole responsibility and authority for maintaining each Underlying Index and determining, in accordance with the objective criteria, which securities are to be added or removed from an Underlying Index. Each Underlying Index is compiled, maintained, and calculated without regard to the Advisor, Sub-Advisor, or Distributor (described below). The Index Administrator has no obligation to take the specific needs of the Advisor, SubAdvisor, or Distributor into account in the determination and calculation of the Underlying Index. Administrator, Accounting Agent, Custodian, and Transfer Agent. BONY would serve as administrator, accounting agent, custodian, and transfer agent for each Fund (‘‘Administrator’’). As the Administrator, BONY would be obligated on a continuous basis to provide certain administration, valuation, accounting, and computational services necessary for the proper administration of the Company and each Fund. BONY also would hold each Fund’s assets, calculate the NAV of each Fund’s Shares, and calculate net income and realized capital gains or losses for each Fund. The Distributor. ALPS Distributors, Inc. (‘‘Distributor’’) would be the distributor of Creation Units (as VerDate Aug<31>2005 19:26 Jun 14, 2007 Jkt 211001 described more fully below) for each Fund on an agency basis. The Distributor has entered into a Distribution Agreement with the Company pursuant to which it would distribute the Shares of each Fund. Shares would be offered continuously for sale by each Fund through the Distributor only in Creation Unit Aggregations (as described more fully below). Fund Shares in less than Creation Unit Aggregations would not be distributed by the Distributor. The Distributor would deliver the prospectuses and, upon request, the Statement of Additional Information (‘‘SAI’’) to persons purchasing Creation Unit Aggregations and would maintain records of orders placed with it. The Distributor is a broker-dealer registered under the Act and a member of NASD. Each Fund has elected and intends to continue to qualify as a ‘‘regulated investment company’’ (a ‘‘RIC’’) under the Internal Revenue Code (‘‘Code’’). Among other things, each Fund must meet certain diversification tests imposed by the Code to satisfy RIC requirements.9 Description of the Funds and the Underlying Indexes. According to the Funds’ Registration Statement, each Fund’s investment objective is to seek to track the performance, before fees and expenses, of a particular Underlying Index. Each Underlying Index is designed to track various geographic sub-sectors of the economy and serve as: (1) Performance benchmarks for portfolio managers and investors who invest in securities of these issuers; (2) performance yardsticks for issuers in these geographic areas; and (3) vehicles for directing attention to regional investments and allocations within the U.S. economy. Each Fund focuses on a different geographic index. The Underlying Indices have been designed geographically in each of the following areas: Georgia, North Carolina, Virginia, and Washington. Each Underlying Index was created and developed by XG based on its own 9 Among these is a requirement that, at the close of each quarter of each Fund’s taxable year: (1) At least 50% of the market value of the Fund’s total assets must be represented by cash items, U.S. government securities, securities of other RICs, and other securities, with such other securities limited for the purpose of this calculation with respect to any one issuer to an amount not greater than 5% of the value of the Fund’s assets and not greater than 10% of the outstanding voting securities of such issuer; and (2) not more than 25% of the value of its total assets may be invested in securities of any one issuer, or two or more issuers that are controlled by the Fund (within the meaning of Section 851(b)(4)(B) of the Code) and that are engaged in the same or similar trades or business (other than U.S. government securities or other RICs). PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 33265 proprietary model. In developing each Underlying Index, XG has established specific characterization/inclusion/ exclusion criteria governing the stocks that are included in each Underlying Index. Each Underlying Index is maintained by the Index Administrator based on such criteria and is generally reconstituted on an annual basis. Decisions regarding additions to, and removals from, each individual Underlying Index are made by the Index Administrator, on an annual basis, in its sole discretion. The Advisor uses a ‘‘passive,’’ or ‘‘indexing,’’ approach in managing each Fund. The Funds do not seek to outperform any particular market sector and would not assume temporary defensive positions when markets decline or appear overvalued. Each Fund would invest at least 90% of its assets in the common stocks of companies in the Underlying Index. Because each Underlying Index is comprised only of stocks from companies headquartered in the named State, as indicated by its name (e.g., only ‘‘Georgia’’ companies are contained in the S&P Custom/StateSharesTM Georgia 50 Index), each Fund would invest at least 90% of its assets in such companies. Each Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, or swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). Each Fund would attempt to replicate the Underlying Index by matching the weighting of securities in its portfolio with such securities’ weightings in the Underlying Index.10 In managing the Funds, the Advisor seeks a correlation of 0.95 or better between each Fund’s performance and the performance of the Underlying Index. A figure of 1.00 would represent perfect correlation. There is no guarantee that the Advisor will be able to obtain this level of correlation. From time to time, it may not be possible, for regulatory or other legal reasons, to replicate each Underlying Index and in such cases the Advisor may pursue a sampling strategy in managing the portfolio. Pursuant to this strategy, a Fund may invest the remainder of its assets in securities of companies not included in an Underlying Index if the Advisor believes that such securities would 10 Each company in the applicable Underlying Index is assigned a weight factor based upon total employees. Companies with more employees are assigned higher weighting than companies with fewer employees. E:\FR\FM\15JNN1.SGM 15JNN1 jlentini on PROD1PC65 with NOTICES 33266 Federal Register / Vol. 72, No. 115 / Friday, June 15, 2007 / Notices assist the Fund in tracking the Underlying Index. If a Fund pursues a sampling strategy, it would continue to invest at least 90% of its assets in the common stocks of the companies in the Underlying Index. The component securities of the Underlying Indexes are all listed on a national securities exchange.11 Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in each of the Indexes. The StateSharesTM Georgia 50 Exchange-Traded Fund seeks to track the performance, before fees and expenses, of the S&P Custom/ StateSharesTM Georgia 50 Index. The StateSharesTM North Carolina 50 Exchange-Traded Fund seeks to track the performance, before fees and expenses, of the S&P Custom/ StateSharesTM North Carolina 50 Index. The StateSharesTM Virginia 50 Exchange-Traded Fund seeks to track the performance, before fees and expenses, of the S&P Custom/ StateSharesTM Virginia 50 Index. The StateSharesTM Washington 50 ExchangeTraded Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateSharesTM Washington 50 Index. Information about each Underlying Index, including the component securities in each Underlying Index and value of the securities in each Underlying Index are disseminated every 15 seconds during the Core Trading Session through Reuters. Each Fund would impose transaction fees on in-kind purchases and redemptions of the Fund to cover the custodial and other costs incurred by the Fund in effecting in-kind trades. To compensate the Company for transfer and other transaction costs involved in creation transactions through the clearing process (as described below), investors would be required to pay a fixed creation transaction fee, payable to the Company regardless of the number of creations made each day. A redemption transaction fee would be imposed to offset transfer and other transaction costs that may be incurred by a Fund. An additional variable charge for cash redemptions (when cash redemptions are available or specified) for a Fund may be imposed. The creation and redemption transaction fees for creations and redemptions inkind for the Funds are described in the Funds’ prospectuses. 11 See e-mail from Tim Malinowski, Director, NYSE Group, Inc. on May 30, 2007 to Mitra Mehr, Special Counsel, Division of Market Regulation (‘‘Division’’), Commission (‘‘NYSE Arca May 30th email’’). VerDate Aug<31>2005 19:26 Jun 14, 2007 Jkt 211001 Each Fund would issue and redeem, on a continuous basis, shares at its net asset value (‘‘NAV’’) only in blocks of 100,000 shares or multiples thereof (each, a ‘‘Creation Unit’’ or a ‘‘Creation Unit Aggregation’’), generally in exchange for a basket of equity securities included in the Underlying Index, together with the deposit of a specified cash payment. Shares would be redeemable only in Creation Unit Aggregations, and, generally, in exchange for portfolio securities and a specified cash payment. All orders to purchase Shares of each Fund in Creation Units must be placed with the Distributor by or through an ‘‘Authorized Participant,’’ which is either: (1) A ‘‘Participating Organization,’’ i.e., a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation (‘‘NSCC’’), a clearing agency that is registered with the Commission (the ‘‘Clearing Process’’); or (2) a Depository Trust Company (‘‘DTC’’) Participant that has executed a ‘‘Participant Agreement’’ with the Distributor governing the purchase and redemption of Creation Units. Consideration for Purchase of Creation Units. The consideration for purchase of a Creation Unit from each Fund generally consists of the in-kind deposit of a designated portfolio of equity securities (‘‘Deposit Securities’’) per each Creation Unit Aggregation constituting a substantial replication of the stocks included in each Fund’s Underlying Index and an amount of cash (‘‘Cash Component’’) consisting of a Balancing Amount (described below) and a transaction fee. Together, the Deposit Securities and the Cash Component constitute the Fund Deposit. The Balancing Amount is an amount equal to the difference between the NAV of a Creation Unit and the market value of the Deposit Securities (‘‘Deposit Amount’’). It ensures that the NAV of a Fund Deposit (not including the transaction fee) is identical to the NAV of the Creation Unit it is used to purchase. If the Balancing Amount is a positive number (i.e., the NAV per Creation Unit exceeds the market value of the Deposit Securities), then that amount would be paid by the purchaser to the Fund in cash. If the Balancing Amount is a negative number (i.e., the NAV per Creation Unit is less than the market value of the Deposit Securities), then that amount would be paid by the Fund to the purchaser in cash (except as offset by the transaction fee). The Company, through the NSCC, makes available on each business day, PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 immediately prior to the opening of business on the NYSE (currently 9:30 a.m. Eastern Time), a list of the names and the required number of shares of each Deposit Security to be included in the current Fund Deposit for each Fund (based on information at the end of the previous business day). The Fund Deposit is applicable, subject to any adjustments as described below, to effect purchases of Creation Units of a Fund until such time as the nextannounced Fund Deposit composition is made available. Each Fund reserves the right to accept a nonconforming Fund Deposit. The identity and number of shares of the Deposit Securities required for a Fund Deposit may change to reflect rebalancing adjustments and corporate actions by a Fund, or in response to adjustments to the weighting or composition of the component stocks of the Underlying Index. In addition, the Company reserves the right to permit or require the substitution of an amount of cash—i.e., a ‘‘cash in lieu’’ amount—to be added to the Cash Component to replace any Deposit Security that: (1) May not be available in sufficient quantity for delivery; (2) may not be eligible for transfer through the Clearing Process; or (3) may not be eligible for trading by a Participating Organization or the investor for which a Participating Organization is acting. Brokerage commissions incurred in connection with acquisition of Deposit Securities not eligible for transfer through the systems of DTC and hence not eligible for transfer through the Clearing Process would be an expense of each Fund. However, the Advisor, subject to the approval of the Board of Directors, may adjust the transaction fee to protect existing shareholders from this expense. In addition to the list of names and numbers of securities constituting the current Deposit Securities, the Company, through the NSCC, would also make available on each business day the estimated Cash Component, effective through and including the previous business day, per outstanding Creation Unit of each Fund. All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility, and acceptance for deposit of any securities to be delivered should be determined by the appropriate Fund, and the Fund’s determination should be final and binding. Redemption of Shares in Creation Units. Fund Shares may be redeemed only in Creation Unit Aggregations at their NAV next determined after receipt of a redemption request in proper form by a Fund through the Administrator E:\FR\FM\15JNN1.SGM 15JNN1 jlentini on PROD1PC65 with NOTICES Federal Register / Vol. 72, No. 115 / Friday, June 15, 2007 / Notices and only on a business day. A Fund would not redeem Shares in amounts less than Creation Unit Aggregations. A beneficial owner must accumulate enough Shares in the secondary market to constitute a Creation Unit Aggregation to have such Shares redeemed by the Company. There can be no assurance, however, that there will be sufficient liquidity in the public trading market at any time to permit assembly of a Creation Unit Aggregation. Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of Fund Shares to constitute a redeemable Creation Unit Aggregation. With respect to a Fund, the Administrator, through the NSCC, makes available prior to the opening of business on the NYSE (currently 9:30 a.m. Eastern Time) on each business day, the identity of the Fund securities that would be applicable (subject to possible amendment or correction) to redemption requests received in proper form (as described below) on that day. Fund Shares received on redemption may not be identical to Deposit Securities that are applicable to creations of Creation Unit Aggregations. Unless cash redemptions are available or specified for a Fund, the redemption proceeds for a Creation Unit Aggregation would generally consist of Fund Shares, as announced on the business day of the request for redemption received in proper form, plus or minus cash in an amount equal to the difference between the NAV of the Fund Shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Fund Shares (the ‘‘Cash Redemption Amount’’), less a redemption transaction fee. If the Fund Shares have a value greater than the Fund Shares’ NAV, a compensating cash payment equal to the difference must be made by or through an Authorized Participant by the redeeming shareholder. The right of redemption may be suspended or the date of payment postponed for each Fund: (1) For any period during which the NYSE is closed (other than customary weekend and holiday closings); (2) for any period during which trading on the NYSE is suspended or restricted; (3) for any period during which an emergency exists as a result of which disposal of the shares of a Fund or determination of a Fund’s NAV is not reasonably practicable; or (4) in such other circumstances as is permitted by the Commission. Dividends, Distributions, and Taxes. Dividends from net investment income, if any, would be declared and paid VerDate Aug<31>2005 19:26 Jun 14, 2007 Jkt 211001 annually by each Fund. Distributions of net realized securities gains, if any, generally would be declared and paid once a year, but the Company may make distributions on a more frequent basis for a Fund to improve index tracking or to comply with the distribution requirements of the Code, in all events in a manner consistent with the provisions of the 1940 Act. Dividends and other distributions on Shares would be distributed on a prorata basis to beneficial owners of such Shares. Dividend payments would be made through DTC Participants and Indirect Participants to beneficial owners then of record with proceeds received from the Company. The Company would make additional distributions to the extent necessary: (1) To distribute the entire annual taxable income of the Company, plus any net capital gains; and (2) to avoid imposition of the excise tax imposed by Section 4982 of the Code. Management of the Company reserves the right to declare special dividends if, in its reasonable discretion, such action is necessary or advisable to preserve the status of each Fund as a RIC or to avoid imposition of income or excise taxes on undistributed income. Dividend Reinvestment Service. The Company would not make the DTC book-entry dividend reinvestment service available for use by beneficial owners for reinvestment of their cash proceeds, but certain individual brokerdealers may make available the DTC book-entry Dividend Reinvestment Service for use by beneficial owners of Funds through DTC Participants for reinvestment of their dividend distributions. Investors would have to contact their brokers to ascertain the availability and description of these services. A broker-dealer could require investors to adhere to specific procedures and timetables to participate in the dividend reinvestment service, and investors would have to ascertain from their brokers such necessary details. If this service is available and used, dividend distributions of both income and realized gains would be automatically reinvested in additional whole Shares issued by the same Fund based on a payable date NAV. Availability of Information Regarding Shares and Underlying Indexes. The Company, through the NSCC, would make available on each business day, immediately prior to the opening of business on the Exchange (currently 9:30 a.m. Eastern Time), a list of the names and the required number of shares of each Deposit Security to be included in the current Fund Deposit PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 33267 for each Fund (based on information at the end of the previous business day). According to the Funds’ Registration Statement, the NAV of each Fund’s shares would be calculated each business day as of the close of regular trading on the NYSE, generally 4 p.m. Eastern Time. NAV per-share would be computed by dividing the net assets by the number of shares outstanding. Additional information regarding the indicative value of shares of each Fund, also known as the ‘‘indicative optimized portfolio value’’ (‘‘IOPV’’), would be disseminated every 15 seconds through the Consolidated Tape throughout the Opening, Core, and Late Trading Sessions (4 a.m. to 8 p.m. Eastern Time) by the Exchange. The IOPV does not necessarily reflect the precise composition of the current portfolio of securities held by a Fund at a particular point in time or the best possible valuation of the current portfolio. Therefore, the IOPV should not be viewed as a ‘‘real-time’’ update of the NAV, which is computed only once a day. The IOPV is generally determined by using both current market quotations and/or quotations obtained from brokerdealers that may trade in the portfolio securities held by a Fund. The Funds’ Web site (http:// www.StateSharesinc.com) would show the prior day’s closing NAV and closing market price for each Shares. In addition, the Funds’ Web site will contain the following information, on a per-Share basis, for each Fund: (1) The prior business day’s NAV and the Bid/ Ask Price and a calculation of the premium or discount of the Bid/Ask Price at the time of calculation of the NAV against such NAV; and (2) data in chart format displaying the frequency distribution of discounts and premiums of the daily Bid/Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters. In addition, the Funds’ Web site would contain information regarding the premiums and discounts at which shares of each Fund has traded. The Exchange would also disseminate a variety of data such as Total Cash Amount Per Creation Unit, Shares Outstanding, and NAV with respect to each Fund on a daily basis by means of CTA and CQ High Speed Lines. In addition, quotation and lastsale information for the Shares would be widely disseminated pursuant to the CTA Plan.12 Each Fund’s portfolio holdings would be publicly disseminated each day that 12 See e-mail from Tim Malinowski, Director, NYSE Group, Inc. on May 24, 2007 to Mitra Mehr, Special Counsel, Division, Commission. E:\FR\FM\15JNN1.SGM 15JNN1 33268 Federal Register / Vol. 72, No. 115 / Friday, June 15, 2007 / Notices a Fund is open for business through financial reporting and news services including publicly available Web sites. In addition, a basket composition file, which includes the security names and share quantities required to be delivered in exchange for Fund Shares, together with estimates and actual cash components, would be publicly disseminated daily prior to the opening of the NYSE, via the NSCC. The Company has informed the Exchange that each Fund would make the NAV for each Fund available to all market participants at the same time. If the NAV is not disseminated to all market participants at the same time, the Exchange would halt trading in the Fund Shares. Information about each Underlying Index, including the component securities in each Underlying Index and the value of the securities in each Underlying Index, would be disseminated every 15 seconds during NYSE Arca’s Core Trading Session through Reuters.13 jlentini on PROD1PC65 with NOTICES The Underlying Indexes S&P Custom/StateSharesTM Georgia 50 Index. As of April 4, 2007, the S&P Custom/StateSharesTM Georgia 50 Index component securities had a modified market capitalization of approximately $72,107,201,000, representing 50 securities. The five highest weighted securities represented approximately 15.37% of the index weight. The heaviest weighted security represented approximately 3.20% of the index weight. Component stocks accounting for only 88.26% of the weight of the Index satisfied the requirement of having monthly trading volume during each of the last six months of at least 250,000 shares.14 S&P Custom/StateShares TM North Carolina 50 Index. As of April 4, 2007, the S&P Custom/StateSharesTM North Carolina 50 Index component securities had a modified market capitalization of approximately $75,522,378,000, representing 50 securities. The five highest weighted securities represented approximately 15.22% of the index weight. The heaviest weighted security represented approximately 3.30% of the index weight. Component stocks accounting for only 87.63% of the weight of the Index satisfied the requirement of having monthly trading volume during each of the last six months of at least 250,000 shares.15 13 See e-mail from Tim Malinowski, Director, NYSE Group, Inc. on June 7, 2007 to Mitra Mehr, Special Counsel, Division, Commission. 14 Source: Bloomberg. 15 See Id. VerDate Aug<31>2005 19:26 Jun 14, 2007 Jkt 211001 S&P Custom/StateSharesTM Virginia 50 Index. As of April 4, 2007, the S&P Custom/StateSharesTM Virginia 50 Index component securities had a modified market capitalization of approximately $69,886,467,000, representing 50 securities. The five highest weighted securities represented approximately 15.79% of the index weight. The heaviest weighted security represented approximately 3.67% of the index weight. Component stocks accounting for only 84.28% of the weight of the index satisfied the requirement of having monthly trading volume during each of the last six months of at least 250,000 shares.16 S&P Custom/StateSharesTM Washington 50 Index. As of April 4, 2007, the S&P Custom/StateSharesTM Washington 50 Index component securities had a modified market capitalization of approximately $70,059,732,000, representing 50 securities. The five highest weighted securities represented approximately 15.48% of the index weight. The heaviest weighted security represented approximately 3.34% of the index weight. Component stocks accounting for only 89.34% of the weight of the index satisfied the requirement of having monthly trading volume during each of the last six months of at least 250,000 shares.17 Criteria for Initial and Continued Listing. The Shares would be subject to the criteria for initial and continued listing of ICUs under NYSE Arca Equities Rules 5.2(j)(3) and 5.5(g)(2). A minimum of one Creation Unit (at least 100,000 Shares) would be required to be outstanding at the start of trading. This requirement would be comparable to requirements that have been applied to previously listed series of ICUs. The Exchange believes that the proposed minimum number of Shares outstanding at the start of trading is sufficient to provide market liquidity. The continued listing criteria for ICUs under NYSE Arca Equities Rule 5.5(g)(2) provide that the Exchange would consider the suspension of trading and delisting (if applicable) of the Shares in any of the following circumstances: • Following the initial 12-month period beginning upon the commencement of trading of the Shares of a Fund, there are fewer than 50 record and/or beneficial holders of such Shares for 30 or more consecutive trading days; or • The value of the Underlying Index of a Fund is no longer calculated or available; or 16 See 17 See PO 00000 Id. Id. Frm 00078 • Such other event occurs or condition exists that, in the opinion of the Exchange, makes further dealings on the Exchange inadvisable. In addition, the Exchange would remove the Shares from trading and listing upon termination of the Company. The Exchange represents the Company and is required to comply with Rule 10A–3 under the Act 18 for the initial and continued listing of the Shares. Trading Rules. The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. The trading hours for each Fund on the Exchange are the same as those set forth in NYSE Arca Equities Rule 7.34 (4 a.m. to 8 p.m. Eastern Time). The minimum trading increment for shares of the Funds on the Exchange would be $0.01. With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of each Fund. Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. These may include: (1) The extent to which trading is not occurring in the securities comprising an Underlying Index and/or the financial instruments of a Fund; or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. In addition, trading in Shares would be subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s ‘‘circuit breaker’’ rule 19 or by the halt or suspension of trading of the underlying securities. If the IOPV or the Index value applicable to a series of ICUs is not being calculated or widely disseminated as required, the Exchange may halt trading during the day in which the interruption to the calculation or wide dissemination of the IOPV or the Index value occurs. If the interruption to the dissemination of the IOPV or the Index value persists past the trading day in which it occurred, the Exchange would halt trading no later than the beginning of the trading day following the interruption. Surveillance. The Exchange intends to utilize its existing surveillance procedures applicable to derivative products to monitor trading in the Shares. The Exchange represents that 18 17 CFR 240.10A–3. Arca Equities Rule 7.12. 19 NYSE Fmt 4703 Sfmt 4703 E:\FR\FM\15JNN1.SGM 15JNN1 Federal Register / Vol. 72, No. 115 / Friday, June 15, 2007 / Notices these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules. The Exchange’s current trading surveillance focuses on detecting when securities trade outside their normal patterns. When such situations are detected, surveillance analysis follows and investigations are opened, where appropriate, to review the behavior of all relevant parties for all relevant trading violations. The Exchange may obtain information via the Intermarket Surveillance Group (‘‘ISG’’) from other exchanges who are members or affiliates of the ISG.20 In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. Information Bulletin. Prior to the commencement of trading, the Exchange would inform its ETP Holders in an Information Bulletin (‘‘Bulletin’’) of the special characteristics and risks associated with trading the Shares. Specifically, the Bulletin would discuss the following: (1) The procedures for purchases and redemptions of Shares in Creation Unit Aggregations (and that Shares are not individually redeemable); (2) NYSE Arca Equities Rule 9.2(a),21 which imposes a duty of due diligence on its ETP Holders to learn the essential facts relating to every customer prior to trading the Shares; (3) how information regarding the IOPV is disseminated; (4) the requirement that each ETP Holder deliver a prospectus to an investor purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (5) trading information. In addition, the Bulletin would reference that each Fund is subject to various fees and expenses described in the Registration Statement. The Bulletin would also discuss any exemptive, noaction, and interpretive relief granted by the Commission from Section 11(d)(1) of jlentini on PROD1PC65 with NOTICES 20 For a list of the current members and affiliate members of ISG, see http://www.isgportal.com. 21 NYSE Arca Equities Rule 9.2(a) provides that an ETP Holder, before recommending a transaction, must have reasonable grounds to believe that the recommendation is suitable for its customer based on any facts disclosed by the customer as to his other security holdings and as to his financial situation and needs. Further, the rule provides, with a limited exception, that prior to the execution of a transaction recommended to a non-institutional customer the ETP Holder shall make reasonable efforts to obtain information concerning the customer’s financial status, tax status, investment objectives, and any other information that it believes would be useful to make a recommendation. See Securities Exchange Act Release No. 34–54045 (June 26, 2006), 71 FR 37971 (July 3, 2006) (SR–PCX–2005–115). VerDate Aug<31>2005 19:26 Jun 14, 2007 Jkt 211001 the Act 22 and certain rules under the Act, including Rule 10a–1, Regulation SHO, Rule 10b–10, Rule 14e–5, Rule 10b–17, Rule 11d1–2, Rules 15c1–5 and 15c1–6, and Rules 101 and 102 of Regulation M under the Act. The Bulletin would also disclose that the NAV for the Shares would be calculated after 4 p.m. Eastern Time each trading day. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act 23 in general, and furthers the objectives of Section 6(b)(5) 24 in particular, 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. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments on the proposed rule change were neither solicited nor received. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NYSEArca–2007–37 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 22 15 U.S.C. 78k(d)(1). U.S.C. 78f(b). 24 15 U.S.C. 78f(b)(5). 23 15 PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 33269 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2007–37. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSEArca–2007–37 and should be submitted on or before July 6, 2007. IV. Commission’s Findings and Order Granting Accelerated Approval of the Proposed Rule Change After careful consideration, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.25 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,26 which requires that an exchange have rules designed, among other things, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and in general to protect investors and the public interest. The Shares of the four Funds do not meet the ‘‘generic’’ listing standards of NYSE Arca Rule 5.2(j)(3) and thus cannot be listed in reliance upon Rule 25 In approving this rule change, the Commission notes that it has considered the proposal’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 26 15 U.S.C. 78f(b)(5). E:\FR\FM\15JNN1.SGM 15JNN1 33270 Federal Register / Vol. 72, No. 115 / Friday, June 15, 2007 / Notices jlentini on PROD1PC65 with NOTICES 19b–4(e) under the Act. The Underlying Indexes do not meet the requirement of Commentary .01(a)(2) to NYSE Arca Equities Rule 5.2(j)(3), which requires that component stocks of an Underlying Index representing at least 90% of the weight of the Underlying Index have a minimum monthly trading volume during each of the last six months of at least 250,000 shares. Instead, as of April 4, 2007, for each Fund, component stocks representing just under 90% of the weight of each Underlying Index had a minimum monthly trading volume during each of the last six months of at least 250,000.27 The Commission believes that the listing and trading of the Shares is consistent with the Act. The Commission notes that it previously has approved exchange rules that contemplate the listing and trading of derivative securities products based on indices that were composed of stocks that did not meet certain quantitative generic listing criteria by only a slight amount.28 The Commission believes that the proposal is consistent with Section 11A(a)(1)(C)(iii) of the Exchange Act,29 which sets forth Congress’ finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities. Quotation and last-sale information for the Shares will be widely disseminated pursuant to the CTA Plan. Moreover, the IOPV will be calculated and disseminated at least every 15 seconds throughout NYSE 27 The percentages ranged from 84.28% for the S&P Custom/StateSharesTM Virginia 50 Index to 89.34% for the S&P Custom/StateSharesTM Washington 50 Index. See supra note 7. 28 See Securities Exchange Act Release No. 55699 (May 3, 2007), 72 FR 26435 (May 9, 2007) (SR– NYSEArca–2007–27) (approving the listing and trading of shares of the iShares FTSE NAREIT Residential Index Fund where the weighting of the five highest components of the underlying index was only marginally higher than that required by NYSE Arca’s generic listing standards); Securities Exchange Act Release No. 52826 (November 22, 2005), 70 FR 71874 (November 30, 2005) (SR– NYSEArca–2005–67) (approving the listing and trading of shares of the iShares Dow Jones U.S. Energy Sector Index Fund and the iShares Dow Jones U.S. Telecommunications Sector Index Fund where the weighting of the five highest components of the respective underlying indexes was higher than that required by NYSE Arca’s generic listing standards). See also Securities Exchange Act Release No. 46306 (August 2, 2002), 67 FR 51916 (August 9, 2002) (SR–NYSE–2002–28) (approving the trading pursuant to UTP of shares of Vanguard Total Stock Market (VIPERs), iShares Russell 2000 Index Funds, iShares Russell 2000 Value Index Funds and iShares Russell 2000 Growth Funds, none of which met the volume requirement of the generic listing criteria for NYSE). 29 15 U.S.C. 78k–1(a)(1)(C)(iii). VerDate Aug<31>2005 19:26 Jun 14, 2007 Jkt 211001 Arca’s three trading sessions, and the Index value will be calculated and disseminated every 15 seconds during the Exchange’s Core Trading Session. The NAV of each Fund will be calculated and disseminated once each trading day. The Funds’ Web site would include, among other things, each Fund’s prospectus and SAI, information regarding the Underlying Index for each Fund,30 the prior day’s closing NAV, a calculation of the premium or discount of the Bid/Ask Price at the time of calculation of the NAV against the NAV on a per-share basis, and information regarding the premiums and discounts at which shares of each Fund have traded. In sum, the Commission believes that the proposal is reasonably designed to facilitate access to information that will assist investors in properly valuing the Shares. The Commission believes that the proposed rules are reasonably designed to promote fair disclosure of information that may be necessary to price an ETF appropriately. The Exchange has represented that if the NAV is not disseminated to all market participants at the same time, the Exchange would halt trading in the Fund shares. The Commission believes that the proposal is reasonably designed to preclude trading of the Shares when transparency is impaired. If the IOPV or the Index value applicable to a series of Shares is not being calculated and disseminated as required, the Exchange may halt trading during the day in which the interruption to the dissemination of the IOPV or the Index value occurs. If the interruption to the calculation and dissemination of the IOPV or the Index value persists past the trading day in which it occurred, the Exchange would halt trading no later than the beginning of the trading day following the interruption. The Commission finds that the Exchange’s proposed rules and procedures for trading of the Shares are consistent with the Act. The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. In support of this proposal, the Exchange has made the following representations: 1. The Exchange will rely on its existing surveillance procedures applicable to derivative products to monitor trading in the Shares. These procedures are adequate to properly monitor Exchange trading of the Shares 30 See PO 00000 NYSE Arca May 30th e-mail. Frm 00080 Fmt 4703 Sfmt 4703 in all trading sessions and to deter and detect violations of Exchange rules. The Exchange may obtain information via the ISG from other exchanges that are members or affiliates of the ISG. 2. Prior to the commencement of trading, the Exchange will inform its ETP Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares. 3. If the IOPV or the Index value applicable to a series of Shares is not being calculated and disseminated as required, the Exchange may halt trading during the day in which the interruption to the dissemination of the IOPV or the Index value occurs. If the interruption to the calculation and dissemination of the IOPV or the Index value persists past the trading day in which it occurred, the Exchange would halt trading no later than the beginning of the trading day following the interruption. This Order is conditioned on NYSE Arca’s adherence to the foregoing representations. The Commission finds good cause to approve the proposed rule change, prior to the thirtieth day after publication for comment in the Federal Register pursuant to Section 19(b)(2) of the Act.31 Except for one criterion relating to the monthly trading volume of the components of the Underlying Indexes, each Fund meets the ‘‘generic’’ listing standards of NYSE Arca Equities Rule 5.2(j)(3). In this case, as of April 4, 2007, component stocks representing just under 90% of the weight of each Underlying Index had a minimum monthly trading volume during each of the last six months of at least 250,000, as required by NYSE Arca generic listing standards.32 The Commission notes that it previously has approved exchange rules that contemplate the listing and trading of derivative securities based on indices with underlying component stocks that did not meet certain quantitative criteria of the generic listing standards by a slight amount.33 The listing and trading of the Shares do not appear to present any new or significant regulatory concerns. Accelerating approval will allow the Shares to trade on NYSE Arca without undue delay and should generate 31 15 U.S.C. 78s(b)(2). stocks representing only 88.26% (S&P Custom/StateSharesTM Georgia 50 Index), 87.63% (S&P Custom/StateSharesTM North Carolina 50 Index), 84.28% (S&P Custom/StateSharesTM Virginia 50 Index), and 89.34% (S&P Custom/ StateSharesTM Washington 50 Index) of the weight of each Underlying Index had a minimum monthly trading volume during each of the last six months of at least 250,000. 33 See supra note 28. 32 Component E:\FR\FM\15JNN1.SGM 15JNN1 Federal Register / Vol. 72, No. 115 / Friday, June 15, 2007 / Notices additional competition in the market for such products. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,34 that the proposed rule change (SR–NYSEArca– 2007–37), be and it hereby is, approved on an accelerated basis. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.35 Nancy M. Morris, Secretary. [FR Doc. E7–11552 Filed 6–14–07; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55891; File No. SR–Phlx– 2007–39] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Its Payment for Order Flow Pilot Program 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 May 18, 2007, the Philadelphia Stock Exchange, Inc. (‘‘Phlx’’ 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 substantially prepared by the Exchange. Phlx has designated this proposal as one establishing or changing a due, fee, or other charge imposed by Phlx under Section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b–4(f)(2) thereunder,4 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. jlentini on PROD1PC65 with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Phlx proposes to extend its payment for order flow pilot program, which is currently in effect until May 27, 2007, for an additional one-year period until May 27, 2008. This proposal is scheduled to expire on the * * * * [EQUITY OPTION] PAYMENT FOR ORDER FLOW FEES* (1) For trades resulting from either Directed or non-Directed Orders that are delivered electronically and executed on the Exchange: Assessed on ROTs, specialists and Directed ROTs on those trades when the specialist unit or Directed ROT elects to participate in the payment for order flow program. * * * (2) No payment for order flow fees will be assessed on trades that are not delivered electronically. QQQQ and options that are trading in the Penny Pilot Program—$0.25 per contract Remaining Equity Options—$0.70 per contract See Appendix A for additional fees. *Assessed on transactions resulting from customer orders and are available to be disbursed by the Exchange according to the instructions of the specialist units/specialists or Directed ROTs to order flow providers who are members or member organizations, who submit, as agent, customer orders to the Exchange or non-members or nonmember organizations who submit, as agent, customer orders to the Exchange through a member or member organization who is acting as agent for those customer orders. The [is proposal] payment for order flow fees [will be in effect for trades settling on or after October 1, 2005 and] will remain in 5 The provisions of Phlx Rule 1080(l) are in effect for a one-year pilot period. The Exchange filed a separate proposed rule change to extend the Rule 1080(l) one-year pilot program for an additional year until May 27, 2008. See Securities Exchange Release No. 55803 (May 23, 2007), 72 FR 30413 (May 31, 2007) (SR–Phlx–2007–37). 34 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 35 17 19:26 Jun 14, 2007 Summary of Equity Option Charges (p. 3/6) * June 11, 2007. VerDate Aug<31>2005 same date as the one-year pilot program in effect in connection with the provisions of Exchange Rule 1080(l) relating to Directed Orders.5 Other than extending the date of the pilot program for an additional year, no other changes to the Exchange’s current payment for order flow program are being proposed at this time. The Exchange is also proposing to make minor clarifying changes to the Exchange’s Summary of Equity Option and RUT and RMN Charges fee schedule to update the language that appears in a footnote and to clarify the title relating to the Exchange’s payment for order flow fees. Below is the text of the proposed rule change. Proposed deletions are in [brackets]; proposed additions are italicized. Jkt 211001 PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 33271 effect as a pilot program that is scheduled to expire on May 27, 200[7]8. ***Any excess payment for order flow funds billed but not utilized by the specialist or Directed ROT will be carried forward unless the Directed ROT or specialist elects to have those funds rebated to the applicable ROT, Directed ROT or specialist on a pro rata basis, reflected as a credit on the monthly invoices. At the end of each calendar quarter, the Exchange will calculate the amount of excess funds from the previous quarter and subsequently rebate excess funds on a pro-rata basis to the applicable ROT, Directed ROT or specialist who paid into that pool of funds. * * * * * II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change, and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. Phlx 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 The Exchange states that the purpose of extending the Exchange’s payment for order flow program for an additional year is to remain competitive with other options exchanges that administer payment for order flow programs.6 Currently, the following payment for order flow fees are in effect at the Exchange: 7 (1) Equity options (other than those options that trade as part of 6 See e.g., Securities Exchange Act Release Nos. 53969 (June 9, 2006), 71 FR 34973 (June 16, 2006) (SR–CBOE–2006–53); 55265 (February 9, 2007), 72 FR 7697 (February 16, 2007) (SR–CBOE–2007–11); 55271 (February 12, 2007), 72 FR 7699 (February 16, 2007) (SR–ISE–2007–08); and 54152 (July 14, 2006), 71 FR 41488 (July 21, 2006) (SR–ISE–2006– 36). 7 See Securities Exchange Act Release Nos. 53841 (May 19, 2006), 71 FR 30461 (May 26, 2006) (SR– Phlx–2006–33); 54297 (August 9, 2006), 71 FR 47280 (August 16, 2006) (SR–Phlx–2006–47); 54485 (September 22, 2006), 71 FR 57017 (September 28, 2006) (SR–Phlx–2006–56); 55290 (February 13, 2007), 72 FR 8051 (February 22, 2007) (SR–Phlx– 2007–05); and 55473 (March 14, 2007), 72 FR 13338 (March 21, 2007) (SR–Phlx–2007–12). E:\FR\FM\15JNN1.SGM 15JNN1

Agencies

[Federal Register Volume 72, Number 115 (Friday, June 15, 2007)]
[Notices]
[Pages 33264-33271]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-11552]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55890; File No. SR-NYSEArca-2007-37]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Order Granting Accelerated Approval of Proposed Rule Change to List 
and Trade Shares of the Four Funds of StateShares, Inc.

June 8, 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 April 10, 2007, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange''), 
through its wholly owned subsidiary NYSE Arca Equities, Inc. (``NYSE 
Arca Equities''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
The Commission is publishing this notice and order to solicit comments 
on the proposed rule change from interested persons and to approve the 
proposed rule change on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares (``Shares'') of the 
following four funds (``Funds'') of StateSharesTM, Inc. 
(``Company'') based on certain underlying securities indexes 
(``Indexes'' or the ``Underlying Indexes'') pursuant to NYSE Arca 
Equities Rule 5.2(j)(3):
     StateSharesTM Georgia 50 Exchange-Traded Fund
     StateSharesTM North Carolina 50 Exchange-Traded 
Fund
     StateSharesTM Virginia 50 Exchange-Traded Fund
     StateSharesTM Washington 50 Exchange-Traded 
Fund
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nyse.com, at the Exchange's principal office, 
and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list the Shares of the Funds. The Company 
is an investment company with 22 series of underlying fund portfolios 
and is registered under the Investment Company Act of 1940 (``1940 
Act'').\3\ Each Fund is registered with the Commission under the 1940 
Act as an open-end, non-diversified management investment company. Each 
Fund's investment objective is to seek to track the performance, before 
fees and expenses, of a particular Underlying Index, as described more 
fully below. Each Fund focuses on a different geographic index.
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    \3\ See Post-Effective Amendment No. 1 to the Company's 
Registration Statement on Form N-1A, as filed with the Commission on 
February 28, 2007 and accompanying Statement of Additional 
Information (``SAI'') (File No. 333-139823) (``Registration 
Statement''). The Company was organized as a Maryland corporation on 
December 26, 2006.
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    Under NYSE Arca Equities Rule 5.2(j)(3), the Exchange may list and/
or trade pursuant to unlisted trading privileges (``UTP'') ``Investment 
Company Units'' (``ICUs'').\4\ The Funds do not meet the ``generic'' 
listing requirements of NYSE Arca Equities Rule 5.2(j)(3) applicable to 
the listing of ICUs pursuant to Rule 19b-4(e) under the Act,\5\ and 
thus cannot be listed without a filing made pursuant to Rule 19b-4 
under the Act.\6\ Specifically, the Indexes underlying these four 
Shares do not meet the requirement of Commentary .01(a)(2) to NYSE Arca 
Equities Rule 5.2(j)(3) that, for component stocks representing at 
least 90% of the weight of the Underlying Index, each of such stocks 
has a minimum monthly trading volume during each of the last six months 
of at least 250,000 shares.\7\
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    \4\ See Securities Exchange Act Release No. 41983 (October 6, 
1999), 64 FR 56008 (October 15, 1999) (SR-PCX-1998-29) (approving 
NYSE Arca Equities Rule 5.2(j)(3)); Securities Exchange Act Release 
No. 44551 (July 12, 2001), 66 FR 37716 (July 19, 2001) (SR-PCX-2001-
14) (approving generic listing standards for ICUs).
    \5\ 17 CFR 240.19b-4(e).
    \6\ 17 CFR 240.19b-4.
    \7\ As of April 4, 2007, stocks with a monthly trading volume 
during each of the last six months of at least 250,000 shares 
represented 88.26%, 87.63%, 84.28%, and 89.34% of the weight of the 
S&P Custom/StateSharesTM Georgia 50 Index, S&P Custom/
StateSharesTM North Carolina 50 Index, S&P Custom/
StateSharesTM Virginia 50 Index, and S&P Custom/
StateSharesTM Washington 50 Index, respectively. Source: 
Bloomberg.
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    Operation of the Funds. XShares Advisors LLC, a subsidiary of 
XShares Group LLC (``XG'') would be the investment adviser 
(``Advisor'') to the Funds. The Advisor is registered as an investment 
adviser under Section 203 of the Investment Advisers Act of 1940 
(``Advisers Act'').\8\ The Advisor would have overall responsibility 
for the general management and administration of each Fund, subject to 
the supervision of the Funds' Board of Directors. Under the Investment 
Advisory Agreement, the Advisor would be responsible for arranging sub-
advisory, transfer agency, custody, fund administration, and all

[[Page 33265]]

other non-distribution-related services for each Fund. The Advisor 
would also be responsible for employing any sampling strategy for each 
Fund. Pursuant to the Investment Advisory Agreement, the Advisor would 
be authorized to engage one or more sub-advisors to perform any of the 
services contemplated to be performed by the Advisor under the 
Investment Advisory Agreement.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 80b.
---------------------------------------------------------------------------

    BNY Investment Advisors (``Sub-Advisor''), a separate identifiable 
division of The Bank of New York (``BONY''), a New York State banking 
corporation, would act as investment sub-advisor to each Fund. Pursuant 
to a Sub-Advisory Agreement between the Advisor and the Sub-Advisor, 
the Sub-Advisor would be responsible for the day-to-day management of 
each Fund, subject to the supervision of the Advisor and the Funds' 
Board of Directors. The Sub-Advisor would be responsible for 
implementing the replication strategy for each Fund with regard to its 
Underlying Index and for general administration, compliance, and 
management services, as may be agreed between the Advisor and the Sub-
Advisor from time to time.
    The Index Administrator. Standard & Poor's is the index 
administrator (``Index Administrator'') and in that capacity has sole 
responsibility and authority for maintaining each Underlying Index and 
determining, in accordance with the objective criteria, which 
securities are to be added or removed from an Underlying Index. Each 
Underlying Index is compiled, maintained, and calculated without regard 
to the Advisor, Sub-Advisor, or Distributor (described below). The 
Index Administrator has no obligation to take the specific needs of the 
Advisor, Sub-Advisor, or Distributor into account in the determination 
and calculation of the Underlying Index.
    Administrator, Accounting Agent, Custodian, and Transfer Agent. 
BONY would serve as administrator, accounting agent, custodian, and 
transfer agent for each Fund (``Administrator''). As the Administrator, 
BONY would be obligated on a continuous basis to provide certain 
administration, valuation, accounting, and computational services 
necessary for the proper administration of the Company and each Fund. 
BONY also would hold each Fund's assets, calculate the NAV of each 
Fund's Shares, and calculate net income and realized capital gains or 
losses for each Fund.
    The Distributor. ALPS Distributors, Inc. (``Distributor'') would be 
the distributor of Creation Units (as described more fully below) for 
each Fund on an agency basis. The Distributor has entered into a 
Distribution Agreement with the Company pursuant to which it would 
distribute the Shares of each Fund. Shares would be offered 
continuously for sale by each Fund through the Distributor only in 
Creation Unit Aggregations (as described more fully below). Fund Shares 
in less than Creation Unit Aggregations would not be distributed by the 
Distributor. The Distributor would deliver the prospectuses and, upon 
request, the Statement of Additional Information (``SAI'') to persons 
purchasing Creation Unit Aggregations and would maintain records of 
orders placed with it. The Distributor is a broker-dealer registered 
under the Act and a member of NASD.
    Each Fund has elected and intends to continue to qualify as a 
``regulated investment company'' (a ``RIC'') under the Internal Revenue 
Code (``Code''). Among other things, each Fund must meet certain 
diversification tests imposed by the Code to satisfy RIC 
requirements.\9\
---------------------------------------------------------------------------

    \9\ Among these is a requirement that, at the close of each 
quarter of each Fund's taxable year: (1) At least 50% of the market 
value of the Fund's total assets must be represented by cash items, 
U.S. government securities, securities of other RICs, and other 
securities, with such other securities limited for the purpose of 
this calculation with respect to any one issuer to an amount not 
greater than 5% of the value of the Fund's assets and not greater 
than 10% of the outstanding voting securities of such issuer; and 
(2) not more than 25% of the value of its total assets may be 
invested in securities of any one issuer, or two or more issuers 
that are controlled by the Fund (within the meaning of Section 
851(b)(4)(B) of the Code) and that are engaged in the same or 
similar trades or business (other than U.S. government securities or 
other RICs).
---------------------------------------------------------------------------

    Description of the Funds and the Underlying Indexes. According to 
the Funds' Registration Statement, each Fund's investment objective is 
to seek to track the performance, before fees and expenses, of a 
particular Underlying Index. Each Underlying Index is designed to track 
various geographic sub-sectors of the economy and serve as: (1) 
Performance benchmarks for portfolio managers and investors who invest 
in securities of these issuers; (2) performance yardsticks for issuers 
in these geographic areas; and (3) vehicles for directing attention to 
regional investments and allocations within the U.S. economy. Each Fund 
focuses on a different geographic index. The Underlying Indices have 
been designed geographically in each of the following areas: Georgia, 
North Carolina, Virginia, and Washington.
    Each Underlying Index was created and developed by XG based on its 
own proprietary model. In developing each Underlying Index, XG has 
established specific characterization/inclusion/exclusion criteria 
governing the stocks that are included in each Underlying Index. Each 
Underlying Index is maintained by the Index Administrator based on such 
criteria and is generally reconstituted on an annual basis. Decisions 
regarding additions to, and removals from, each individual Underlying 
Index are made by the Index Administrator, on an annual basis, in its 
sole discretion.
    The Advisor uses a ``passive,'' or ``indexing,'' approach in 
managing each Fund. The Funds do not seek to outperform any particular 
market sector and would not assume temporary defensive positions when 
markets decline or appear overvalued. Each Fund would invest at least 
90% of its assets in the common stocks of companies in the Underlying 
Index. Because each Underlying Index is comprised only of stocks from 
companies headquartered in the named State, as indicated by its name 
(e.g., only ``Georgia'' companies are contained in the S&P Custom/
StateSharesTM Georgia 50 Index), each Fund would invest at 
least 90% of its assets in such companies. Each Fund may also invest up 
to 10% of its assets in futures contracts, options on futures 
contracts, options, or swaps on securities of companies in the 
Underlying Index, as well as cash and cash equivalents, such as money 
market instruments (subject to applicable limitations of the 1940 Act). 
Each Fund would attempt to replicate the Underlying Index by matching 
the weighting of securities in its portfolio with such securities' 
weightings in the Underlying Index.\10\ In managing the Funds, the 
Advisor seeks a correlation of 0.95 or better between each Fund's 
performance and the performance of the Underlying Index. A figure of 
1.00 would represent perfect correlation. There is no guarantee that 
the Advisor will be able to obtain this level of correlation.
---------------------------------------------------------------------------

    \10\ Each company in the applicable Underlying Index is assigned 
a weight factor based upon total employees. Companies with more 
employees are assigned higher weighting than companies with fewer 
employees.
---------------------------------------------------------------------------

    From time to time, it may not be possible, for regulatory or other 
legal reasons, to replicate each Underlying Index and in such cases the 
Advisor may pursue a sampling strategy in managing the portfolio. 
Pursuant to this strategy, a Fund may invest the remainder of its 
assets in securities of companies not included in an Underlying Index 
if the Advisor believes that such securities would

[[Page 33266]]

assist the Fund in tracking the Underlying Index. If a Fund pursues a 
sampling strategy, it would continue to invest at least 90% of its 
assets in the common stocks of the companies in the Underlying Index.
    The component securities of the Underlying Indexes are all listed 
on a national securities exchange.\11\ Only companies with market 
capitalizations greater than $100 million for at least two of the 
preceding three quarters are eligible for inclusion in each of the 
Indexes. The StateSharesTM Georgia 50 Exchange-Traded Fund 
seeks to track the performance, before fees and expenses, of the S&P 
Custom/StateSharesTM Georgia 50 Index. The 
StateSharesTM North Carolina 50 Exchange-Traded Fund seeks 
to track the performance, before fees and expenses, of the S&P Custom/
StateSharesTM North Carolina 50 Index. The 
StateSharesTM Virginia 50 Exchange-Traded Fund seeks to 
track the performance, before fees and expenses, of the S&P Custom/
StateSharesTM Virginia 50 Index. The 
StateSharesTM Washington 50 Exchange-Traded Fund seeks to 
track the performance, before fees and expenses, of the S&P Custom/
StateSharesTM Washington 50 Index.
---------------------------------------------------------------------------

    \11\ See e-mail from Tim Malinowski, Director, NYSE Group, Inc. 
on May 30, 2007 to Mitra Mehr, Special Counsel, Division of Market 
Regulation (``Division''), Commission (``NYSE Arca May 30th e-
mail'').
---------------------------------------------------------------------------

    Information about each Underlying Index, including the component 
securities in each Underlying Index and value of the securities in each 
Underlying Index are disseminated every 15 seconds during the Core 
Trading Session through Reuters.
    Each Fund would impose transaction fees on in-kind purchases and 
redemptions of the Fund to cover the custodial and other costs incurred 
by the Fund in effecting in-kind trades. To compensate the Company for 
transfer and other transaction costs involved in creation transactions 
through the clearing process (as described below), investors would be 
required to pay a fixed creation transaction fee, payable to the 
Company regardless of the number of creations made each day. A 
redemption transaction fee would be imposed to offset transfer and 
other transaction costs that may be incurred by a Fund. An additional 
variable charge for cash redemptions (when cash redemptions are 
available or specified) for a Fund may be imposed. The creation and 
redemption transaction fees for creations and redemptions in-kind for 
the Funds are described in the Funds' prospectuses.
    Each Fund would issue and redeem, on a continuous basis, shares at 
its net asset value (``NAV'') only in blocks of 100,000 shares or 
multiples thereof (each, a ``Creation Unit'' or a ``Creation Unit 
Aggregation''), generally in exchange for a basket of equity securities 
included in the Underlying Index, together with the deposit of a 
specified cash payment. Shares would be redeemable only in Creation 
Unit Aggregations, and, generally, in exchange for portfolio securities 
and a specified cash payment.
    All orders to purchase Shares of each Fund in Creation Units must 
be placed with the Distributor by or through an ``Authorized 
Participant,'' which is either: (1) A ``Participating Organization,'' 
i.e., a broker-dealer or other participant in the clearing process 
through the Continuous Net Settlement System of the National Securities 
Clearing Corporation (``NSCC''), a clearing agency that is registered 
with the Commission (the ``Clearing Process''); or (2) a Depository 
Trust Company (``DTC'') Participant that has executed a ``Participant 
Agreement'' with the Distributor governing the purchase and redemption 
of Creation Units.
    Consideration for Purchase of Creation Units. The consideration for 
purchase of a Creation Unit from each Fund generally consists of the 
in-kind deposit of a designated portfolio of equity securities 
(``Deposit Securities'') per each Creation Unit Aggregation 
constituting a substantial replication of the stocks included in each 
Fund's Underlying Index and an amount of cash (``Cash Component'') 
consisting of a Balancing Amount (described below) and a transaction 
fee. Together, the Deposit Securities and the Cash Component constitute 
the Fund Deposit.
    The Balancing Amount is an amount equal to the difference between 
the NAV of a Creation Unit and the market value of the Deposit 
Securities (``Deposit Amount''). It ensures that the NAV of a Fund 
Deposit (not including the transaction fee) is identical to the NAV of 
the Creation Unit it is used to purchase. If the Balancing Amount is a 
positive number (i.e., the NAV per Creation Unit exceeds the market 
value of the Deposit Securities), then that amount would be paid by the 
purchaser to the Fund in cash. If the Balancing Amount is a negative 
number (i.e., the NAV per Creation Unit is less than the market value 
of the Deposit Securities), then that amount would be paid by the Fund 
to the purchaser in cash (except as offset by the transaction fee).
    The Company, through the NSCC, makes available on each business 
day, immediately prior to the opening of business on the NYSE 
(currently 9:30 a.m. Eastern Time), a list of the names and the 
required number of shares of each Deposit Security to be included in 
the current Fund Deposit for each Fund (based on information at the end 
of the previous business day). The Fund Deposit is applicable, subject 
to any adjustments as described below, to effect purchases of Creation 
Units of a Fund until such time as the next-announced Fund Deposit 
composition is made available. Each Fund reserves the right to accept a 
nonconforming Fund Deposit.
    The identity and number of shares of the Deposit Securities 
required for a Fund Deposit may change to reflect rebalancing 
adjustments and corporate actions by a Fund, or in response to 
adjustments to the weighting or composition of the component stocks of 
the Underlying Index. In addition, the Company reserves the right to 
permit or require the substitution of an amount of cash--i.e., a ``cash 
in lieu'' amount--to be added to the Cash Component to replace any 
Deposit Security that: (1) May not be available in sufficient quantity 
for delivery; (2) may not be eligible for transfer through the Clearing 
Process; or (3) may not be eligible for trading by a Participating 
Organization or the investor for which a Participating Organization is 
acting. Brokerage commissions incurred in connection with acquisition 
of Deposit Securities not eligible for transfer through the systems of 
DTC and hence not eligible for transfer through the Clearing Process 
would be an expense of each Fund. However, the Advisor, subject to the 
approval of the Board of Directors, may adjust the transaction fee to 
protect existing shareholders from this expense.
    In addition to the list of names and numbers of securities 
constituting the current Deposit Securities, the Company, through the 
NSCC, would also make available on each business day the estimated Cash 
Component, effective through and including the previous business day, 
per outstanding Creation Unit of each Fund. All questions as to the 
number of shares of each security in the Deposit Securities and the 
validity, form, eligibility, and acceptance for deposit of any 
securities to be delivered should be determined by the appropriate 
Fund, and the Fund's determination should be final and binding.
    Redemption of Shares in Creation Units. Fund Shares may be redeemed 
only in Creation Unit Aggregations at their NAV next determined after 
receipt of a redemption request in proper form by a Fund through the 
Administrator

[[Page 33267]]

and only on a business day. A Fund would not redeem Shares in amounts 
less than Creation Unit Aggregations. A beneficial owner must 
accumulate enough Shares in the secondary market to constitute a 
Creation Unit Aggregation to have such Shares redeemed by the Company. 
There can be no assurance, however, that there will be sufficient 
liquidity in the public trading market at any time to permit assembly 
of a Creation Unit Aggregation. Investors should expect to incur 
brokerage and other costs in connection with assembling a sufficient 
number of Fund Shares to constitute a redeemable Creation Unit 
Aggregation.
    With respect to a Fund, the Administrator, through the NSCC, makes 
available prior to the opening of business on the NYSE (currently 9:30 
a.m. Eastern Time) on each business day, the identity of the Fund 
securities that would be applicable (subject to possible amendment or 
correction) to redemption requests received in proper form (as 
described below) on that day. Fund Shares received on redemption may 
not be identical to Deposit Securities that are applicable to creations 
of Creation Unit Aggregations.
    Unless cash redemptions are available or specified for a Fund, the 
redemption proceeds for a Creation Unit Aggregation would generally 
consist of Fund Shares, as announced on the business day of the request 
for redemption received in proper form, plus or minus cash in an amount 
equal to the difference between the NAV of the Fund Shares being 
redeemed, as next determined after a receipt of a request in proper 
form, and the value of the Fund Shares (the ``Cash Redemption 
Amount''), less a redemption transaction fee. If the Fund Shares have a 
value greater than the Fund Shares' NAV, a compensating cash payment 
equal to the difference must be made by or through an Authorized 
Participant by the redeeming shareholder.
    The right of redemption may be suspended or the date of payment 
postponed for each Fund: (1) For any period during which the NYSE is 
closed (other than customary weekend and holiday closings); (2) for any 
period during which trading on the NYSE is suspended or restricted; (3) 
for any period during which an emergency exists as a result of which 
disposal of the shares of a Fund or determination of a Fund's NAV is 
not reasonably practicable; or (4) in such other circumstances as is 
permitted by the Commission.
    Dividends, Distributions, and Taxes. Dividends from net investment 
income, if any, would be declared and paid annually by each Fund. 
Distributions of net realized securities gains, if any, generally would 
be declared and paid once a year, but the Company may make 
distributions on a more frequent basis for a Fund to improve index 
tracking or to comply with the distribution requirements of the Code, 
in all events in a manner consistent with the provisions of the 1940 
Act.
    Dividends and other distributions on Shares would be distributed on 
a pro-rata basis to beneficial owners of such Shares. Dividend payments 
would be made through DTC Participants and Indirect Participants to 
beneficial owners then of record with proceeds received from the 
Company.
    The Company would make additional distributions to the extent 
necessary: (1) To distribute the entire annual taxable income of the 
Company, plus any net capital gains; and (2) to avoid imposition of the 
excise tax imposed by Section 4982 of the Code. Management of the 
Company reserves the right to declare special dividends if, in its 
reasonable discretion, such action is necessary or advisable to 
preserve the status of each Fund as a RIC or to avoid imposition of 
income or excise taxes on undistributed income.
    Dividend Reinvestment Service. The Company would not make the DTC 
book-entry dividend reinvestment service available for use by 
beneficial owners for reinvestment of their cash proceeds, but certain 
individual broker-dealers may make available the DTC book-entry 
Dividend Reinvestment Service for use by beneficial owners of Funds 
through DTC Participants for reinvestment of their dividend 
distributions. Investors would have to contact their brokers to 
ascertain the availability and description of these services. A broker-
dealer could require investors to adhere to specific procedures and 
timetables to participate in the dividend reinvestment service, and 
investors would have to ascertain from their brokers such necessary 
details. If this service is available and used, dividend distributions 
of both income and realized gains would be automatically reinvested in 
additional whole Shares issued by the same Fund based on a payable date 
NAV.
    Availability of Information Regarding Shares and Underlying 
Indexes. The Company, through the NSCC, would make available on each 
business day, immediately prior to the opening of business on the 
Exchange (currently 9:30 a.m. Eastern Time), a list of the names and 
the required number of shares of each Deposit Security to be included 
in the current Fund Deposit for each Fund (based on information at the 
end of the previous business day).
    According to the Funds' Registration Statement, the NAV of each 
Fund's shares would be calculated each business day as of the close of 
regular trading on the NYSE, generally 4 p.m. Eastern Time. NAV per-
share would be computed by dividing the net assets by the number of 
shares outstanding.
    Additional information regarding the indicative value of shares of 
each Fund, also known as the ``indicative optimized portfolio value'' 
(``IOPV''), would be disseminated every 15 seconds through the 
Consolidated Tape throughout the Opening, Core, and Late Trading 
Sessions (4 a.m. to 8 p.m. Eastern Time) by the Exchange. The IOPV does 
not necessarily reflect the precise composition of the current 
portfolio of securities held by a Fund at a particular point in time or 
the best possible valuation of the current portfolio. Therefore, the 
IOPV should not be viewed as a ``real-time'' update of the NAV, which 
is computed only once a day. The IOPV is generally determined by using 
both current market quotations and/or quotations obtained from broker-
dealers that may trade in the portfolio securities held by a Fund.
    The Funds' Web site (http://www.StateSharesinc.com) would show the 
prior day's closing NAV and closing market price for each Shares. In 
addition, the Funds' Web site will contain the following information, 
on a per-Share basis, for each Fund: (1) The prior business day's NAV 
and the Bid/Ask Price and a calculation of the premium or discount of 
the Bid/Ask Price at the time of calculation of the NAV against such 
NAV; and (2) data in chart format displaying the frequency distribution 
of discounts and premiums of the daily Bid/Ask Price against the NAV, 
within appropriate ranges, for each of the four previous calendar 
quarters. In addition, the Funds' Web site would contain information 
regarding the premiums and discounts at which shares of each Fund has 
traded. The Exchange would also disseminate a variety of data such as 
Total Cash Amount Per Creation Unit, Shares Outstanding, and NAV with 
respect to each Fund on a daily basis by means of CTA and CQ High Speed 
Lines. In addition, quotation and last-sale information for the Shares 
would be widely disseminated pursuant to the CTA Plan.\12\
---------------------------------------------------------------------------

    \12\ See e-mail from Tim Malinowski, Director, NYSE Group, Inc. 
on May 24, 2007 to Mitra Mehr, Special Counsel, Division, 
Commission.
---------------------------------------------------------------------------

    Each Fund's portfolio holdings would be publicly disseminated each 
day that

[[Page 33268]]

a Fund is open for business through financial reporting and news 
services including publicly available Web sites. In addition, a basket 
composition file, which includes the security names and share 
quantities required to be delivered in exchange for Fund Shares, 
together with estimates and actual cash components, would be publicly 
disseminated daily prior to the opening of the NYSE, via the NSCC.
    The Company has informed the Exchange that each Fund would make the 
NAV for each Fund available to all market participants at the same 
time. If the NAV is not disseminated to all market participants at the 
same time, the Exchange would halt trading in the Fund Shares.
    Information about each Underlying Index, including the component 
securities in each Underlying Index and the value of the securities in 
each Underlying Index, would be disseminated every 15 seconds during 
NYSE Arca's Core Trading Session through Reuters.\13\
---------------------------------------------------------------------------

    \13\ See e-mail from Tim Malinowski, Director, NYSE Group, Inc. 
on June 7, 2007 to Mitra Mehr, Special Counsel, Division, 
Commission.
---------------------------------------------------------------------------

The Underlying Indexes
    S&P Custom/StateSharesTM Georgia 50 Index. As of April 
4, 2007, the S&P Custom/StateSharesTM Georgia 50 Index 
component securities had a modified market capitalization of 
approximately $72,107,201,000, representing 50 securities. The five 
highest weighted securities represented approximately 15.37% of the 
index weight. The heaviest weighted security represented approximately 
3.20% of the index weight. Component stocks accounting for only 88.26% 
of the weight of the Index satisfied the requirement of having monthly 
trading volume during each of the last six months of at least 250,000 
shares.\14\
---------------------------------------------------------------------------

    \14\ Source: Bloomberg.
---------------------------------------------------------------------------

    S&P Custom/StateShares TM North Carolina 50 Index. As of 
April 4, 2007, the S&P Custom/StateSharesTM North Carolina 
50 Index component securities had a modified market capitalization of 
approximately $75,522,378,000, representing 50 securities. The five 
highest weighted securities represented approximately 15.22% of the 
index weight. The heaviest weighted security represented approximately 
3.30% of the index weight. Component stocks accounting for only 87.63% 
of the weight of the Index satisfied the requirement of having monthly 
trading volume during each of the last six months of at least 250,000 
shares.\15\
---------------------------------------------------------------------------

    \15\ See Id.
---------------------------------------------------------------------------

    S&P Custom/StateSharesTM Virginia 50 Index. As of April 
4, 2007, the S&P Custom/StateSharesTM Virginia 50 Index 
component securities had a modified market capitalization of 
approximately $69,886,467,000, representing 50 securities. The five 
highest weighted securities represented approximately 15.79% of the 
index weight. The heaviest weighted security represented approximately 
3.67% of the index weight. Component stocks accounting for only 84.28% 
of the weight of the index satisfied the requirement of having monthly 
trading volume during each of the last six months of at least 250,000 
shares.\16\
---------------------------------------------------------------------------

    \16\ See Id.
---------------------------------------------------------------------------

    S&P Custom/StateSharesTM Washington 50 Index. As of 
April 4, 2007, the S&P Custom/StateSharesTM Washington 50 
Index component securities had a modified market capitalization of 
approximately $70,059,732,000, representing 50 securities. The five 
highest weighted securities represented approximately 15.48% of the 
index weight. The heaviest weighted security represented approximately 
3.34% of the index weight. Component stocks accounting for only 89.34% 
of the weight of the index satisfied the requirement of having monthly 
trading volume during each of the last six months of at least 250,000 
shares.\17\
---------------------------------------------------------------------------

    \17\ See Id.
---------------------------------------------------------------------------

    Criteria for Initial and Continued Listing. The Shares would be 
subject to the criteria for initial and continued listing of ICUs under 
NYSE Arca Equities Rules 5.2(j)(3) and 5.5(g)(2). A minimum of one 
Creation Unit (at least 100,000 Shares) would be required to be 
outstanding at the start of trading. This requirement would be 
comparable to requirements that have been applied to previously listed 
series of ICUs. The Exchange believes that the proposed minimum number 
of Shares outstanding at the start of trading is sufficient to provide 
market liquidity.
    The continued listing criteria for ICUs under NYSE Arca Equities 
Rule 5.5(g)(2) provide that the Exchange would consider the suspension 
of trading and delisting (if applicable) of the Shares in any of the 
following circumstances:
     Following the initial 12-month period beginning upon the 
commencement of trading of the Shares of a Fund, there are fewer than 
50 record and/or beneficial holders of such Shares for 30 or more 
consecutive trading days; or
     The value of the Underlying Index of a Fund is no longer 
calculated or available; or
     Such other event occurs or condition exists that, in the 
opinion of the Exchange, makes further dealings on the Exchange 
inadvisable.
    In addition, the Exchange would remove the Shares from trading and 
listing upon termination of the Company.
    The Exchange represents the Company and is required to comply with 
Rule 10A-3 under the Act \18\ for the initial and continued listing of 
the Shares.
---------------------------------------------------------------------------

    \18\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    Trading Rules. The Exchange deems the Shares to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
The trading hours for each Fund on the Exchange are the same as those 
set forth in NYSE Arca Equities Rule 7.34 (4 a.m. to 8 p.m. Eastern 
Time). The minimum trading increment for shares of the Funds on the 
Exchange would be $0.01.
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of each Fund. Trading may be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable. These may include: (1) The 
extent to which trading is not occurring in the securities comprising 
an Underlying Index and/or the financial instruments of a Fund; or (2) 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. In addition, 
trading in Shares would be subject to trading halts caused by 
extraordinary market volatility pursuant to the Exchange's ``circuit 
breaker'' rule \19\ or by the halt or suspension of trading of the 
underlying securities. If the IOPV or the Index value applicable to a 
series of ICUs is not being calculated or widely disseminated as 
required, the Exchange may halt trading during the day in which the 
interruption to the calculation or wide dissemination of the IOPV or 
the Index value occurs. If the interruption to the dissemination of the 
IOPV or the Index value persists past the trading day in which it 
occurred, the Exchange would halt trading no later than the beginning 
of the trading day following the interruption.
---------------------------------------------------------------------------

    \19\ NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

    Surveillance. The Exchange intends to utilize its existing 
surveillance procedures applicable to derivative products to monitor 
trading in the Shares. The Exchange represents that

[[Page 33269]]

these procedures are adequate to properly monitor Exchange trading of 
the Shares in all trading sessions and to deter and detect violations 
of Exchange rules.
    The Exchange's current trading surveillance focuses on detecting 
when securities trade outside their normal patterns. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange may obtain information via the Intermarket 
Surveillance Group (``ISG'') from other exchanges who are members or 
affiliates of the ISG.\20\
---------------------------------------------------------------------------

    \20\ For a list of the current members and affiliate members of 
ISG, see http://www.isgportal.com.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    Information Bulletin. Prior to the commencement of trading, the 
Exchange would inform its ETP Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares. Specifically, the Bulletin would discuss the 
following: (1) The procedures for purchases and redemptions of Shares 
in Creation Unit Aggregations (and that Shares are not individually 
redeemable); (2) NYSE Arca Equities Rule 9.2(a),\21\ which imposes a 
duty of due diligence on its ETP Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (3) how 
information regarding the IOPV is disseminated; (4) the requirement 
that each ETP Holder deliver a prospectus to an investor purchasing 
newly issued Shares prior to or concurrently with the confirmation of a 
transaction; and (5) trading information.
---------------------------------------------------------------------------

    \21\ NYSE Arca Equities Rule 9.2(a) provides that an ETP Holder, 
before recommending a transaction, must have reasonable grounds to 
believe that the recommendation is suitable for its customer based 
on any facts disclosed by the customer as to his other security 
holdings and as to his financial situation and needs. Further, the 
rule provides, with a limited exception, that prior to the execution 
of a transaction recommended to a non-institutional customer the ETP 
Holder shall make reasonable efforts to obtain information 
concerning the customer's financial status, tax status, investment 
objectives, and any other information that it believes would be 
useful to make a recommendation. See Securities Exchange Act Release 
No. 34-54045 (June 26, 2006), 71 FR 37971 (July 3, 2006) (SR-PCX-
2005-115).
---------------------------------------------------------------------------

    In addition, the Bulletin would reference that each Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin would also discuss any exemptive, no-action, and 
interpretive relief granted by the Commission from Section 11(d)(1) of 
the Act \22\ and certain rules under the Act, including Rule 10a-1, 
Regulation SHO, Rule 10b-10, Rule 14e-5, Rule 10b-17, Rule 11d1-2, 
Rules 15c1-5 and 15c1-6, and Rules 101 and 102 of Regulation M under 
the Act. The Bulletin would also disclose that the NAV for the Shares 
would be calculated after 4 p.m. Eastern Time each trading day.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78k(d)(1).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \23\ in general, and furthers the 
objectives of Section 6(b)(5) \24\ in particular, 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.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2007-37 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2007-37. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NYSEArca-2007-37 and should be submitted on or before 
July 6, 2007.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\25\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\26\ which 
requires that an exchange have rules designed, among other things, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and in general to protect investors and the public 
interest.
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    \25\ In approving this rule change, the Commission notes that it 
has considered the proposal's impact on efficiency, competition, and 
capital formation. See 15 U.S.C. 78c(f).
    \26\ 15 U.S.C. 78f(b)(5).
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    The Shares of the four Funds do not meet the ``generic'' listing 
standards of NYSE Arca Rule 5.2(j)(3) and thus cannot be listed in 
reliance upon Rule

[[Page 33270]]

19b-4(e) under the Act. The Underlying Indexes do not meet the 
requirement of Commentary .01(a)(2) to NYSE Arca Equities Rule 
5.2(j)(3), which requires that component stocks of an Underlying Index 
representing at least 90% of the weight of the Underlying Index have a 
minimum monthly trading volume during each of the last six months of at 
least 250,000 shares. Instead, as of April 4, 2007, for each Fund, 
component stocks representing just under 90% of the weight of each 
Underlying Index had a minimum monthly trading volume during each of 
the last six months of at least 250,000.\27\ The Commission believes 
that the listing and trading of the Shares is consistent with the Act. 
The Commission notes that it previously has approved exchange rules 
that contemplate the listing and trading of derivative securities 
products based on indices that were composed of stocks that did not 
meet certain quantitative generic listing criteria by only a slight 
amount.\28\
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    \27\ The percentages ranged from 84.28% for the S&P Custom/
StateShares\TM\ Virginia 50 Index to 89.34% for the S&P Custom/
StateShares\TM\ Washington 50 Index. See supra note 7.
    \28\ See Securities Exchange Act Release No. 55699 (May 3, 
2007), 72 FR 26435 (May 9, 2007) (SR-NYSEArca-2007-27) (approving 
the listing and trading of shares of the iShares FTSE NAREIT 
Residential Index Fund where the weighting of the five highest 
components of the underlying index was only marginally higher than 
that required by NYSE Arca's generic listing standards); Securities 
Exchange Act Release No. 52826 (November 22, 2005), 70 FR 71874 
(November 30, 2005) (SR-NYSEArca-2005-67) (approving the listing and 
trading of shares of the iShares Dow Jones U.S. Energy Sector Index 
Fund and the iShares Dow Jones U.S. Telecommunications Sector Index 
Fund where the weighting of the five highest components of the 
respective underlying indexes was higher than that required by NYSE 
Arca's generic listing standards). See also Securities Exchange Act 
Release No. 46306 (August 2, 2002), 67 FR 51916 (August 9, 2002) 
(SR-NYSE-2002-28) (approving the trading pursuant to UTP of shares 
of Vanguard Total Stock Market (VIPERs), iShares Russell 2000 Index 
Funds, iShares Russell 2000 Value Index Funds and iShares Russell 
2000 Growth Funds, none of which met the volume requirement of the 
generic listing criteria for NYSE).
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    The Commission believes that the proposal is consistent with 
Section 11A(a)(1)(C)(iii) of the Exchange Act,\29\ which sets forth 
Congress' finding that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities. Quotation and last-sale information for the Shares will be 
widely disseminated pursuant to the CTA Plan. Moreover, the IOPV will 
be calculated and disseminated at least every 15 seconds throughout 
NYSE Arca's three trading sessions, and the Index value will be 
calculated and disseminated every 15 seconds during the Exchange's Core 
Trading Session. The NAV of each Fund will be calculated and 
disseminated once each trading day. The Funds' Web site would include, 
among other things, each Fund's prospectus and SAI, information 
regarding the Underlying Index for each Fund,\30\ the prior day's 
closing NAV, a calculation of the premium or discount of the Bid/Ask 
Price at the time of calculation of the NAV against the NAV on a per-
share basis, and information regarding the premiums and discounts at 
which shares of each Fund have traded. In sum, the Commission believes 
that the proposal is reasonably designed to facilitate access to 
information that will assist investors in properly valuing the Shares.
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    \29\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \30\ See NYSE Arca May 30th e-mail.
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    The Commission believes that the proposed rules are reasonably 
designed to promote fair disclosure of information that may be 
necessary to price an ETF appropriately. The Exchange has represented 
that if the NAV is not disseminated to all market participants at the 
same time, the Exchange would halt trading in the Fund shares.
    The Commission believes that the proposal is reasonably designed to 
preclude trading of the Shares when transparency is impaired. If the 
IOPV or the Index value applicable to a series of Shares is not being 
calculated and disseminated as required, the Exchange may halt trading 
during the day in which the interruption to the dissemination of the 
IOPV or the Index value occurs. If the interruption to the calculation 
and dissemination of the IOPV or the Index value persists past the 
trading day in which it occurred, the Exchange would halt trading no 
later than the beginning of the trading day following the interruption.
    The Commission finds that the Exchange's proposed rules and 
procedures for trading of the Shares are consistent with the Act. The 
Exchange deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to the Exchange's existing rules 
governing the trading of equity securities.
    In support of this proposal, the Exchange has made the following 
representations:
    1. The Exchange will rely on its existing surveillance procedures 
applicable to derivative products to monitor trading in the Shares. 
These procedures are adequate to properly monitor Exchange trading of 
the Shares in all trading sessions and to deter and detect violations 
of Exchange rules. The Exchange may obtain information via the ISG from 
other exchanges that are members or affiliates of the ISG.
    2. Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares.
    3. If the IOPV or the Index value applicable to a series of Shares 
is not being calculated and disseminated as required, the Exchange may 
halt trading during the day in which the interruption to the 
dissemination of the IOPV or the Index value occurs. If the 
interruption to the calculation and dissemination of the IOPV or the 
Index value persists past the trading day in which it occurred, the 
Exchange would halt trading no later than the beginning of the trading 
day following the interruption.
    This Order is conditioned on NYSE Arca's adherence to the foregoing 
representations.
    The Commission finds good cause to approve the proposed rule 
change, prior to the thirtieth day after publication for comment in the 
Federal Register pursuant to Section 19(b)(2) of the Act.\31\ Except 
for one criterion relating to the monthly trading volume of the 
components of the Underlying Indexes, each Fund meets the ``generic'' 
listing standards of NYSE Arca Equities Rule 5.2(j)(3). In this case, 
as of April 4, 2007, component stocks representing just under 90% of 
the weight of each Underlying Index had a minimum monthly trading 
volume during each of the last six months of at least 250,000, as 
required by NYSE Arca generic listing standards.\32\ The Commission 
notes that it previously has approved exchange rules that contemplate 
the listing and trading of derivative securities based on indices with 
underlying component stocks that did not meet certain quantitative 
criteria of the generic listing standards by a slight amount.\33\ The 
listing and trading of the Shares do not appear to present any new or 
significant regulatory concerns. Accelerating approval will allow the 
Shares to trade on NYSE Arca without undue delay and should generate

[[Page 33271]]

additional competition in the market for such products.
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    \31\ 15 U.S.C. 78s(b)(2).
    \32\ Component stocks representing only 88.26% (S&P Custom/
StateShares\TM\ Georgia 50 Index), 87.63% (S&P Custom/
StateShares\TM\ North Carolina 50 Index), 84.28% (S&P Custom/
StateShares\TM\ Virginia 50 Index), and 89.34% (S&P Custom/
StateShares\TM\ Washington 50 Index) of the weight of each 
Underlying Index had a minimum monthly trading volume during each of 
the last six months of at least 250,000.
    \33\ See supra note 28.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\34\ that the proposed rule change (SR-NYSEArca-2007-37), be and it 
hereby is, approved on an accelerated basis.
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    \34\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E7-11552 Filed 6-14-07; 8:45 am]
BILLING CODE 8010-01-P