Self-Regulatory Organizations; American Stock Exchange LLC; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Amend the Eligibility Criteria for Components of an Index or Portfolio Underlying Portfolio Depositary Receipts and Index Fund Shares, 29793-29796 [E8-11424]

Download as PDF Federal Register / Vol. 73, No. 100 / Thursday, May 22, 2008 / Notices Management, 202–789–6898, or judith.grady@prc.gov as soon as possible. B. Flagstaff, Arizona Hearing The Flagstaff hearing will be held on Wednesday, May 21, 2008, at City Hall, 211 West Aspen Ave. The hearing is scheduled to begin at 2 p.m. and conclude at 4 p.m. Details concerning the witness list will be posted on the Commission’s Web site. C. St. Paul, Minnesota Hearing The St. Paul field hearing will be held on Thursday, June 5, 2008, in City Council Chambers on the third floor of the City Hall/Court House Building, 15 Kellogg Blvd. The hearing is scheduled to begin at 10 a.m. and conclude at 12 p.m. Details concerning the witness list will be posted on the Commission’s Web site. D. Portsmouth, New Hampshire Hearing The Portsmouth field hearing will be held on Thursday, June 19, 2008, at City Hall, 1 Junkins Ave. The hearing is scheduled to begin at 2 p.m. and conclude at 4 p.m. Details concerning the witness list will be posted on the Commission’s Web site. IV. Ordering Paragraphs It is Ordered: 1. The Commission will hold the scheduled field hearings and public workshop referred to in the body of this order. 2. The Secretary shall arrange for publication of this notice in the Federal Register. By the Commission. Dated: May 16, 2008. Garry J. Sikora, Acting Secretary. [FR Doc. E8–11453 Filed 5–21–08; 8:45 am] BILLING CODE 7710–FW–P SECURITIES AND EXCHANGE COMMISSION Submission for OMB Review; Comment Request rwilkins on PROD1PC63 with NOTICES Upon written request, copies available from: Securities and Exchange Commission, Office of Investor Education and Advocacy, Washington, DC 20549–0213 Extension: Regulation S–X; SEC File No. 270–3; OMB Control No. 3235–0009. Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission VerDate Aug<31>2005 17:03 May 21, 2008 Jkt 214001 (‘‘Commission’’) has submitted to the Office of Management and Budget (‘‘OMB’’) a request for extension of the previously approved collection of information discussed below. Information collected and information prepared pursuant to Regulation S–X focus on the form and content of, and requirements for, financial statements filed with periodic reports and in connection with the offer and sale of securities. Investors need reasonably current financial statements to make informed investment and voting decisions. The potential respondents include all entities that file registration statements or reports pursuant to the Securities Act of 1933 (15 U.S.C. 77a, et seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78a, et seq.) or the Investment Company Act of 1940 (15 U.S.C. 80a–1, et seq.). Regulation S–X specifies the form and content of financial statements when those financial statements are required to be filed by other rules and forms under the federal securities laws. Compliance burdens associated with the financial statements are assigned to the rule or form that directly requires the financial statements to be filed, not to Regulation S–X. Instead, an estimated burden of one hour traditionally has been assigned to Regulation S–X for incidental reading of the regulation. The estimated average burden hours are solely for purposes of the Paperwork Reduction Act and are not derived from a comprehensive or even a representative survey or study of the costs of SEC rules or forms. Recordkeeping retention periods are based on the disclosure required by various forms and rules other than Regulation S–X. In general, balance sheets for the preceding two fiscal years, income and cash flow statements for the preceding three fiscal years, and condensed quarterly financial statements must be filed with the Commission. Five-year summary financial information is required to be disclosed by some larger registrants. Filing financial statements, when required by the governing rule or form, is mandatory. Because these statements are provided for the purpose of disseminating information to the securities markets, they are not kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. General comments regarding the above information should be directed to the following persons: (i) Desk Officer PO 00000 Frm 00060 Fmt 4703 Sfmt 4703 29793 for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503 or send an email to: Alexander_T._Hunt@omb.eop.gov, and (ii) R. Corey Booth, Director/Chief Information Officer, Office of Information Technology, Securities and Exchange Commission, C/O Shirley Martinson, 6432 General Green Way, Alexandria, Virginia 22312; or send an e-mail to: PRA_Mailbox@sec.gov. Dated: May 15, 2008. Florence E. Harmon, Deputy Secretary. [FR Doc. E8–11430 Filed 5–21–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–57818; File No. SR–Amex– 2008–30] Self-Regulatory Organizations; American Stock Exchange LLC; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Amend the Eligibility Criteria for Components of an Index or Portfolio Underlying Portfolio Depositary Receipts and Index Fund Shares May 15, 2008. I. Introduction On March 25, 2008, the American Stock Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend Commentary .03 to Amex Rule 1000–AEMI (Portfolio Receipts or ‘‘PDRs’’) and Commentary .02 to Amex Rule 1000A–AEMI (Index Fund Shares or ‘‘IFSs,’’ and together with PDRs, collectively, ‘‘ETFs’’) to modify certain eligibility criteria for components of an index or portfolio underlying ETFs. On April 1, 2008, the Exchange filed Amendment No. 1 to the proposed rule change. The proposed rule change was published for comment in the Federal Register on April 14, 2008.3 The Commission received no comments on the proposed rule change. This order 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 57631 (April 8, 2008), 73 FR 20074. 2 17 E:\FR\FM\22MYN1.SGM 22MYN1 29794 Federal Register / Vol. 73, No. 100 / Thursday, May 22, 2008 / Notices approves the proposed rule change, as modified by Amendment No. 1 thereto. rwilkins on PROD1PC63 with NOTICES II. Description of the Proposal The Exchange proposes to amend Commentary .03 to Amex Rule 1000– AEMI and Commentary .02 to Amex Rule 1000A–AEMI to exclude ETFs and securities defined as Managed Fund Shares (Amex Rule 1000B), Trust Issued Receipts (Amex Rule 1200), Commodity-Based Trust Shares (Amex Rule 1200A), Currency Trust Shares (Amex Rule 1200B), Partnership Units (Amex Rule 1500), and Paired Trust Shares (Amex Rule 1600) (together with ETFs, collectively, ‘‘Derivative Securities Products’’) when applying certain quantitative listing requirements of Commentary .03 to Amex Rule 1000– AEMI and Commentary .02 to Amex Rule 1000A–AEMI. In this way, the Exchange seeks to enable the listing and trading of ETFs that are linked to, or based on, components that are Derivative Securities Products pursuant to Rule 19b–4(e) under the Act.4 Amex Rules 1000–AEMI and 1000A– AEMI provide that the Exchange may approve a series of PDRs and IFSs, respectively, for listing and/or trading (including pursuant to unlisted trading privileges) pursuant to Rule 19b–4(e) under the Act,5 if such series satisfies the criteria set forth in such Rules. In its proposal, the Exchange seeks to exclude Derivative Securities Products when applying certain quantitative listing requirements of Commentary .03 to Amex Rule 1000–AEMI and Commentary .02 to Amex Rule 1000A– AEMI relating to the listing of PDRs and IFSs, respectively, based on a U.S. index or portfolio or an international or global index or portfolio. With respect to Commentary .03 to Amex Rule 1000–AEMI and Commentary .02 to Amex Rule 1000A– AEMI, the Exchange proposes to exclude Derivative Securities Products, as components, when applying the following existing component eligibility requirements: (1) Component stocks that, in the aggregate, account for at least 90% of the weight of the index or portfolio each must have a minimum market value of at least $75 million 4 Rule 19b–4(e) under the Act provides that the listing and trading of a new derivative securities product by a self-regulatory organization (‘‘SRO’’) shall not be deemed a proposed rule change, pursuant to Rule 19b–4(c)(1) (17 CFR 240.19b– 4(c)(1)), if the Commission has approved, pursuant to Section 19(b) of the Act (15 U.S.C. 78s(b)), the SRO’s trading rules, procedures, and listing standards for the product class that would include the new derivatives securities product, and the SRO has a surveillance program for the product class. See 17 CFR 240.19b–4(e). 5 See id. VerDate Aug<31>2005 17:03 May 21, 2008 Jkt 214001 (Commentary .03(a)(A)(1) to Amex Rule 1000–AEMI and Commentary .02(a)(A)(1) to Amex Rule 1000A– AEMI); (2) component stocks that, in the aggregate, account for at least 90% of the weight of the index or portfolio each must have a minimum monthly trading volume during each of the last six months of at least 250,000 shares (Commentary .03(a)(A)(2) to Amex Rule 1000–AEMI and Commentary .02(a)(A)(2) to Amex Rule 1000A– AEMI); and (3) the most heavily weighted component stock must not exceed 30% of the weight of the index or portfolio, and the five most heavily weighted component stocks must not exceed 65% of the weight of the index or portfolio (Commentary .03(a)(A)(3) to Amex Rule 1000–AEMI and Commentary .02(a)(A)(3) to Amex Rule 1000A–AEMI). Component stocks, in the aggregate, excluding Derivative Securities Products, would still be required to meet the criteria of these provisions. Thus, for example, when determining compliance with Commentaries .03(a)(A)(1) and (2) to Amex Rule 1000–AEMI and Commentaries .02(a)(A)(1) and (2) to Amex Rule 1000A–AEMI, component stocks that, in the aggregate, account for at least 90% of the remaining index weight, after excluding any Derivative Securities Products, would be required to have a minimum market value of at least $75 million and minimum monthly trading volume of 250,000 shares during each of the last six months, respectively. In addition, with respect to Commentary .03(a)(A)(3) to Amex Rule 1000–AEMI and Commentary .02(a)(A)(3) to Amex Rule 1000A–AEMI, when determining the component weight for the most heavily weighted stock and the five most heavily weighted component stocks for an underlying index that includes a Derivative Securities Product, the weight of such Derivative Securities Products included in the underlying index or portfolio would not be considered. In addition, the Exchange proposes to modify the requirements in Commentary .03(a)(A)(4) to Amex Rule 1000–AEMI and Commentary .02(a)(A)(4) to Amex Rule 1000A–AEMI, which provide that the underlying index or portfolio must include a minimum of 13 component stocks. Specifically, the Exchange proposes that there shall be no minimum number of component stocks if: (1) One or more series of ETFs constitute, at least in part, components underlying a series of ETFs; or (2) one or more series of Derivative Securities Products account for 100% of PO 00000 Frm 00061 Fmt 4703 Sfmt 4703 the weight of the index or portfolio. Thus, for example, if the index or portfolio underlying a series of ETFs includes one or more series of ETFs, or if it consists entirely of other Derivative Securities Products, then there would not be required to be any minimum number of component stocks (i.e., one or more components comprising the underlying index or portfolio would be acceptable). However, if the index or portfolio consists of Derivative Securities Products other than ETFs (e.g., Commodity-Based Trust Shares or Currency Trust Shares), as well as securities that are not Derivative Securities Products (e.g., common stocks), then there would have to be at least 13 components in the underlying index or portfolio. Consistent with current Commentary .03(a)(A)(5) to Amex Rule 1000–AEMI and Commentary .02(a)(A)(5) to Amex Rule 1000A–AEMI, all securities in the index or portfolio would have to be ‘‘US Component Stocks’’ (as defined in Amex Rules 1000–AEMI(b)(3) and 1000A–AEMI(b)(4)) 6 listed on a national securities exchange and NMS Stocks, as defined in Rule 600 of under the Act.7 With respect to Commentary .03(a)(B) to Amex Rule 1000–AEMI and Commentary .02(a)(B) to Amex Rule 1000A–AEMI, the Exchange proposes to exclude Derivative Securities Products, as components, when applying the following existing component eligibility requirements: (1) Component stocks that, in the aggregate, account for at least 90% of the weight of the index or portfolio each must have a minimum market value of at least $100 million (Commentary .03(a)(B)(1) to Amex Rule 1000–AEMI and Commentary .02(a)(B)(1) to Amex Rule 1000A– AEMI); (2) component stocks that, in the aggregate, account for at least 90% of the weight of the index or portfolio each must have a minimum worldwide monthly trading volume during each of the last six months of at least 250,000 shares (Commentary .03(a)(B)(2) to Amex Rule 1000–AEMI and Commentary .02(a)(B)(2) to Amex Rule 1000A–AEMI); and (3) the most heavily weighted component stock must not exceed 25% of the weight of the index or portfolio, and the five most heavily weighted component stocks must not exceed 60% of the weight of the index or portfolio (Commentary .03(a)(B)(3) to 6 ‘‘US Component Stock’’ is an equity security that is registered under Section 12(b) or 12(g) of the Act or an American Depositary Receipt, the underlying equity security of which is registered under Section 12(b) or 12(g) of the Act. See Amex Rules 1000–AEMI(b)(3) and 1000A–AEMI(b)(4). 7 See 17 CFR 242.600(b)(47). E:\FR\FM\22MYN1.SGM 22MYN1 rwilkins on PROD1PC63 with NOTICES Federal Register / Vol. 73, No. 100 / Thursday, May 22, 2008 / Notices Amex Rule 1000–AEMI and Commentary .02(a)(B)(3) to Amex Rule 1000A–AEMI). Thus, for example, when determining compliance with Commentaries .03(a)(B)(1) and (2) to Amex Rule 1000–AEMI and Commentaries .02(a)(B)(1) and (2) to Amex Rule 1000A–AEMI, component stocks that, in the aggregate, account for at least 90% of the remaining index weight, after excluding any Derivative Securities Products, would be required to have a minimum market value of at least $100 million and minimum worldwide monthly trading volume of 250,000 shares during each of the last six months, respectively. In addition, with respect to Commentary .03(a)(B)(3) to Amex Rule 1000–AEMI and Commentary .02(a)(B)(3) to Amex Rule 1000A–AEMI, when determining the component weight for the most heavily weighted stock and the five most heavily weighted component stocks for an underlying index that includes a Derivative Securities Product, the weight of such Derivative Securities Products included in the underlying index or portfolio would not be considered. In addition, the Exchange proposes to modify the requirements in Commentary .03(a)(B)(4) to Amex Rule 1000–AEMI and Commentary .02(a)(B)(4) to Amex Rule 1000A–AEMI, which provide that the underlying index or portfolio must include a minimum of 20 component stocks. Specifically, the Exchange proposes that there shall be no minimum number of component stocks if: (1) One or more series of ETFs constitute, at least in part, components underlying a series of ETFs; or (2) one or more series of Derivative Securities Products account for 100% of the weight of the index or portfolio. Thus, for example, if the index or portfolio underlying a series of ETFs includes one or more series of ETFs, or if it consists entirely of other Derivative Securities Products, then there would not be required to be any minimum number of component stocks (i.e., one or more components comprising the underlying index or portfolio would be acceptable). However, if the index or portfolio consists of Derivative Securities Products other than ETFs (e.g., Commodity-Based Trust Shares or Currency Trust Shares), as well as securities that are not Derivative Securities Products (e.g., common stocks), then there would have to be at least 20 components in the underlying index or portfolio. Consistent with current Commentary .03(a)(B)(5) to Amex Rule 1000–AEMI and Commentary .02(a)(B)(5) to Amex Rule 1000A–AEMI, each component VerDate Aug<31>2005 17:03 May 21, 2008 Jkt 214001 that is a U.S. Component Stock (which would include each Derivative Securities Product) would be required to be listed on a national securities exchange and be an NMS Stock, as defined in Rule 600 under the Act, and each component that is a Non-US Component Stock (as defined in Amex Rules 1000–AEMI(b)(4) and 1000A– AEMI(b)(5)) 8 would be required to be listed and traded on an exchange that has last-sale reporting. III. Discussion and Commission’s Findings After careful review and based on the Exchange’s representations, 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.9 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,10 which requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, protect investors and the public interest. Under Commentary .03 to Amex Rule 1000–AEMI and Commentary .02 to Amex Rule 1000A–AEMI, one or more series of Derivative Securities Products may be included as a component comprising the index or portfolio underlying a series of ETFs.11 The 8 ‘‘Non-US Component Stock’’ is an equity security that is not registered under Section 12(b) or 12(g) of the Act and that is issued by an entity that (1) is not organized, domiciled, or incorporated in the United States, and (2) is an operating company (including Real Estate Investment Trusts and income trusts, but excluding investment trusts, unit trusts, mutual funds, and derivatives). See Amex Rules 1000–AEMI(b)(4) and 1000A– AEMI(b)(5). 9 In approving this proposed rule change, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 10 15 U.S.C. 78f(b)(5). 11 Under Commentary .03 to Amex Rule 1000– AEMI and Commentary .02 to Amex Rule 1000A– AEMI, a series of a Derivative Securities Product may be included as a U.S. Component Stock or Non-U.S. Component Stock underlying a series of PDRs or IFSs, respectively, so long as the shares of such series meet the definitions of U.S. Component Stock and Non-U.S. Component Stock, as applicable. See supra notes 6 and 8. See also Commentaries .03(a)(A)(5) and .03(a)(B)(5) to Amex Rule 1000–AEMI and Commentaries .02(a)(A)(5) and .02(a)(B)(5) to Amex Rule 1000A–AEMI (requiring that, in any event, all securities in the PO 00000 Frm 00062 Fmt 4703 Sfmt 4703 29795 Commission notes that, based on the trading characteristics of Derivative Securities Products, it may be difficult for component Derivative Securities Products to satisfy certain quantitative index criteria, such as the minimum market value and trading volume limitations. However, because Derivative Securities Products are themselves subject to specific initial and continued listing requirements, the Commission believes that it would be reasonable to exclude Derivative Securities Products, as components, when applying certain quantitative listing requirements related to the listing of PDRs and IFSs. For example, the index component eligibility standards for ETFs require, among others, that there be a minimum of 13 component stocks in an underlying U.S. index or portfolio and a minimum of 20 component stocks in an international or global index or portfolio. If one or more series of ETFs constitutes, at least in part, a component of a U.S. or international index underlying a series of ETFs, the Commission believes that not requiring a minimum number of components underlying such overlying ETFs would be reasonable because each component ETF already requires a minimum of 13 or 20 component stocks, as the case may be. In addition, if the index or portfolio underlying a series of ETFs consists entirely of other component Derivative Securities Products, then there would be no required minimum number of component stocks. The Commission notes that, if a series of ETFs is based on the performance of an underlying index or portfolio composed, in part, of: (1) An ETF and another non-Derivative Securities Product (e.g., common stock), or (2) a Derivative Securities Product other than an ETF, then the minimum number of component stock requirement will continue to apply. In addition, because component Derivative Securities Products may comprise 100% of the weight of any index underlying a series of ETFs, the Commission believes that providing for an exception to the concentration limits contained in Commentary .03(a)(A)(3) to Amex Rule 1000–AEMI and Commentary .02(a)(A)(3) to Amex Rule 1000A–AEMI with respect to component Derivative Securities Products is reasonable. The Commission further notes that component Derivative applicable index or portfolio must be a U.S. Component Stock listed on a national securities exchange and an NMS Stock, as defined in Rule 600 under the Act, or, in the case of an international or global index or portfolio, must be a Non-U.S. Component Stock that is listed and traded on an exchange that has last-sale reporting). E:\FR\FM\22MYN1.SGM 22MYN1 29796 Federal Register / Vol. 73, No. 100 / Thursday, May 22, 2008 / Notices Securities Products that are U.S. Component Stocks comprising, at least in part, an index or portfolio underlying a series of Units must meet the definition of NMS Stock 12 and already have been listed and trading on a national securities exchange pursuant to a proposed rule change approved by the Commission pursuant to Section 19(b)(2) of the Act 13 or submitted by a national securities exchange pursuant to Section 19(b)(3)(A) of the Act,14 or would have been listed by a national securities exchange pursuant to the requirements of Rule 19b–4(e) under the Act.15 Component Derivative Securities Products that are Non-U.S. Component Stocks comprising, at least in part, an international or global index or portfolio underlying a series of Units must already have been listed and trading on an exchange that has last-sale reporting. The Commission believes that the proposed rule change will facilitate the listing and trading of additional types of exchange-traded products that will enhance competition among market participants, to the benefit of investors and the marketplace. In addition, the listing and trading criteria set forth in the proposal are intended to protect investors and the public interest. The Commission notes that it has approved a substantively identical proposal of another national securities exchange.16 The Commission is not aware of any regulatory issue that should cause it revisit that finding and, as such, believes it is reasonable and consistent with the Act for the Exchange to modify the index component eligibility criteria for ETFs in the manner described in the proposal. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,17 that the proposed rule change (SR–Amex–2008– 30), as modified by Amendment No. 1 thereto, be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Florence E. Harmon, Deputy Secretary. [FR Doc. E8–11424 Filed 5–21–08; 8:45 am] BILLING CODE 8010–01–P 12 See supra note 7. U.S.C. 78s(b)(2). 14 15 U.S.C. 78s(b)(3)(A). 15 See supra note 4. 16 See Securities Exchange Act Release No. 57751 (May 1, 2008), 73 FR 25818 (May 7, 2008) (SR– NYSEArca–2008–29). 17 15 U.S.C. 78s(b)(2). 18 17 CFR 200.30–3(a)(12). rwilkins on PROD1PC63 with NOTICES 13 15 VerDate Aug<31>2005 17:03 May 21, 2008 Jkt 214001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–57816; File No. SR–CBOE– 2008–41] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Proposed Rule Change Relating to the Automated Improvement Auction May 14, 2008. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 15, 2008, Chicago Board Options Exchange, Incorporated (‘‘CBOE’’ 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. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to allow orders for less than 50 contracts to be entered into the Automated Improvement Mechanism (‘‘AIM’’) at a price that matches the national best bid or offer (‘‘NBBO’’). The text of the proposed rule change is available at the Exchange, on the Exchange’s Web site (http://www.cboe.org/Legal), and in 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 IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose In order to provide additional opportunities for price improvement, 1 15 2 17 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00063 Fmt 4703 Sfmt 4703 the Exchange proposes to expand the application of its electronic AIM auction process. Under the AIM auction process, a member that represents agency orders may submit an order it represents as agent (‘‘Agency Order’’) along with a second order (a principal order or a solicited order for the same amount as the Agency Order) into the AIM auction where other participants can compete with the submitting member’s second order to execute against the Agency Order. A member (the ‘‘Initiating Member’’) may initiate the AIM auction process provided certain requirements are met. These requirements include a condition that the Initiating Member stop the entire Agency Order as principal or with a solicited order at the following price: (i) If the Agency Order is for 50 contracts or more, at the better of the NBBO or the Agency Order’s limit price (if the order is a limit order); and (ii) if the Agency Order is for less than 50 contracts, at the better of (A) the NBBO price improved by one minimum price improvement increment, which increment shall be determined by the Exchange but may not be smaller than one cent; or (B) the Agency Order’s limit price (if the order is a limit order). The Exchange is now proposing to modify this condition with respect to the stop price for orders of less than 50 contracts. Under the proposed rule change, such orders would be stopped at the better of the NBBO or the Agency Order’s limit price (if the order is a limit order). Thus, orders for less than 50 contracts would be treated the same as orders for 50 contracts or more for purposes of the AIM stop price requirement. The Exchange believes this is a reasonable modification designed to provide additional flexibility for members to obtain executions on behalf of their customers while continuing to provide a meaningful, competitive auction. The Exchange believes this expansion of AIM would have the added benefit of providing members with an alternative method of achieving an execution at the NBBO for their customers without having to pay taker fees that may be associated with routing an order to another market in those scenarios where CBOE’s best bid or offer is inferior to the NBBO.3 3 Several options exchanges have adopted a fee structure in which firms receive a rebate for the execution of orders resting in the limit order book (i.e., posting liquidity) and pay a fee for the execution of orders that trade against liquidity resting on the limit order book (i.e., taking liquidity). Taker fees currently range up to $0.45 per contract and are charged without consideration of the order origin category, including public customer orders. In contrast, CBOE does not generally charge a fee for the execution of public customer orders. The effective price paid by a E:\FR\FM\22MYN1.SGM 22MYN1

Agencies

[Federal Register Volume 73, Number 100 (Thursday, May 22, 2008)]
[Notices]
[Pages 29793-29796]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-11424]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57818; File No. SR-Amex-2008-30]


Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Granting Approval of Proposed Rule Change, as Modified by Amendment No. 
1 Thereto, To Amend the Eligibility Criteria for Components of an Index 
or Portfolio Underlying Portfolio Depositary Receipts and Index Fund 
Shares

May 15, 2008.

I. Introduction

    On March 25, 2008, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Commentary .03 to Amex Rule 1000-AEMI 
(Portfolio Receipts or ``PDRs'') and Commentary .02 to Amex Rule 1000A-
AEMI (Index Fund Shares or ``IFSs,'' and together with PDRs, 
collectively, ``ETFs'') to modify certain eligibility criteria for 
components of an index or portfolio underlying ETFs. On April 1, 2008, 
the Exchange filed Amendment No. 1 to the proposed rule change. The 
proposed rule change was published for comment in the Federal Register 
on April 14, 2008.\3\ The Commission received no comments on the 
proposed rule change. This order

[[Page 29794]]

approves the proposed rule change, as modified by Amendment No. 1 
thereto.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 57631 (April 8, 
2008), 73 FR 20074.
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange proposes to amend Commentary .03 to Amex Rule 1000-
AEMI and Commentary .02 to Amex Rule 1000A-AEMI to exclude ETFs and 
securities defined as Managed Fund Shares (Amex Rule 1000B), Trust 
Issued Receipts (Amex Rule 1200), Commodity-Based Trust Shares (Amex 
Rule 1200A), Currency Trust Shares (Amex Rule 1200B), Partnership Units 
(Amex Rule 1500), and Paired Trust Shares (Amex Rule 1600) (together 
with ETFs, collectively, ``Derivative Securities Products'') when 
applying certain quantitative listing requirements of Commentary .03 to 
Amex Rule 1000-AEMI and Commentary .02 to Amex Rule 1000A-AEMI. In this 
way, the Exchange seeks to enable the listing and trading of ETFs that 
are linked to, or based on, components that are Derivative Securities 
Products pursuant to Rule 19b-4(e) under the Act.\4\
---------------------------------------------------------------------------

    \4\ Rule 19b-4(e) under the Act provides that the listing and 
trading of a new derivative securities product by a self-regulatory 
organization (``SRO'') shall not be deemed a proposed rule change, 
pursuant to Rule 19b-4(c)(1) (17 CFR 240.19b-4(c)(1)), if the 
Commission has approved, pursuant to Section 19(b) of the Act (15 
U.S.C. 78s(b)), the SRO's trading rules, procedures, and listing 
standards for the product class that would include the new 
derivatives securities product, and the SRO has a surveillance 
program for the product class. See 17 CFR 240.19b-4(e).
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    Amex Rules 1000-AEMI and 1000A-AEMI provide that the Exchange may 
approve a series of PDRs and IFSs, respectively, for listing and/or 
trading (including pursuant to unlisted trading privileges) pursuant to 
Rule 19b-4(e) under the Act,\5\ if such series satisfies the criteria 
set forth in such Rules. In its proposal, the Exchange seeks to exclude 
Derivative Securities Products when applying certain quantitative 
listing requirements of Commentary .03 to Amex Rule 1000-AEMI and 
Commentary .02 to Amex Rule 1000A-AEMI relating to the listing of PDRs 
and IFSs, respectively, based on a U.S. index or portfolio or an 
international or global index or portfolio.
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    \5\ See id.
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    With respect to Commentary .03 to Amex Rule 1000-AEMI and 
Commentary .02 to Amex Rule 1000A-AEMI, the Exchange proposes to 
exclude Derivative Securities Products, as components, when applying 
the following existing component eligibility requirements: (1) 
Component stocks that, in the aggregate, account for at least 90% of 
the weight of the index or portfolio each must have a minimum market 
value of at least $75 million (Commentary .03(a)(A)(1) to Amex Rule 
1000-AEMI and Commentary .02(a)(A)(1) to Amex Rule 1000A-AEMI); (2) 
component stocks that, in the aggregate, account for at least 90% of 
the weight of the index or portfolio each must have a minimum monthly 
trading volume during each of the last six months of at least 250,000 
shares (Commentary .03(a)(A)(2) to Amex Rule 1000-AEMI and Commentary 
.02(a)(A)(2) to Amex Rule 1000A-AEMI); and (3) the most heavily 
weighted component stock must not exceed 30% of the weight of the index 
or portfolio, and the five most heavily weighted component stocks must 
not exceed 65% of the weight of the index or portfolio (Commentary 
.03(a)(A)(3) to Amex Rule 1000-AEMI and Commentary .02(a)(A)(3) to Amex 
Rule 1000A-AEMI). Component stocks, in the aggregate, excluding 
Derivative Securities Products, would still be required to meet the 
criteria of these provisions. Thus, for example, when determining 
compliance with Commentaries .03(a)(A)(1) and (2) to Amex Rule 1000-
AEMI and Commentaries .02(a)(A)(1) and (2) to Amex Rule 1000A-AEMI, 
component stocks that, in the aggregate, account for at least 90% of 
the remaining index weight, after excluding any Derivative Securities 
Products, would be required to have a minimum market value of at least 
$75 million and minimum monthly trading volume of 250,000 shares during 
each of the last six months, respectively. In addition, with respect to 
Commentary .03(a)(A)(3) to Amex Rule 1000-AEMI and Commentary 
.02(a)(A)(3) to Amex Rule 1000A-AEMI, when determining the component 
weight for the most heavily weighted stock and the five most heavily 
weighted component stocks for an underlying index that includes a 
Derivative Securities Product, the weight of such Derivative Securities 
Products included in the underlying index or portfolio would not be 
considered.
    In addition, the Exchange proposes to modify the requirements in 
Commentary .03(a)(A)(4) to Amex Rule 1000-AEMI and Commentary 
.02(a)(A)(4) to Amex Rule 1000A-AEMI, which provide that the underlying 
index or portfolio must include a minimum of 13 component stocks. 
Specifically, the Exchange proposes that there shall be no minimum 
number of component stocks if: (1) One or more series of ETFs 
constitute, at least in part, components underlying a series of ETFs; 
or (2) one or more series of Derivative Securities Products account for 
100% of the weight of the index or portfolio. Thus, for example, if the 
index or portfolio underlying a series of ETFs includes one or more 
series of ETFs, or if it consists entirely of other Derivative 
Securities Products, then there would not be required to be any minimum 
number of component stocks (i.e., one or more components comprising the 
underlying index or portfolio would be acceptable). However, if the 
index or portfolio consists of Derivative Securities Products other 
than ETFs (e.g., Commodity-Based Trust Shares or Currency Trust 
Shares), as well as securities that are not Derivative Securities 
Products (e.g., common stocks), then there would have to be at least 13 
components in the underlying index or portfolio.
    Consistent with current Commentary .03(a)(A)(5) to Amex Rule 1000-
AEMI and Commentary .02(a)(A)(5) to Amex Rule 1000A-AEMI, all 
securities in the index or portfolio would have to be ``US Component 
Stocks'' (as defined in Amex Rules 1000-AEMI(b)(3) and 1000A-
AEMI(b)(4)) \6\ listed on a national securities exchange and NMS 
Stocks, as defined in Rule 600 of under the Act.\7\
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    \6\ ``US Component Stock'' is an equity security that is 
registered under Section 12(b) or 12(g) of the Act or an American 
Depositary Receipt, the underlying equity security of which is 
registered under Section 12(b) or 12(g) of the Act. See Amex Rules 
1000-AEMI(b)(3) and 1000A-AEMI(b)(4).
    \7\ See 17 CFR 242.600(b)(47).
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    With respect to Commentary .03(a)(B) to Amex Rule 1000-AEMI and 
Commentary .02(a)(B) to Amex Rule 1000A-AEMI, the Exchange proposes to 
exclude Derivative Securities Products, as components, when applying 
the following existing component eligibility requirements: (1) 
Component stocks that, in the aggregate, account for at least 90% of 
the weight of the index or portfolio each must have a minimum market 
value of at least $100 million (Commentary .03(a)(B)(1) to Amex Rule 
1000-AEMI and Commentary .02(a)(B)(1) to Amex Rule 1000A-AEMI); (2) 
component stocks that, in the aggregate, account for at least 90% of 
the weight of the index or portfolio each must have a minimum worldwide 
monthly trading volume during each of the last six months of at least 
250,000 shares (Commentary .03(a)(B)(2) to Amex Rule 1000-AEMI and 
Commentary .02(a)(B)(2) to Amex Rule 1000A-AEMI); and (3) the most 
heavily weighted component stock must not exceed 25% of the weight of 
the index or portfolio, and the five most heavily weighted component 
stocks must not exceed 60% of the weight of the index or portfolio 
(Commentary .03(a)(B)(3) to

[[Page 29795]]

Amex Rule 1000-AEMI and Commentary .02(a)(B)(3) to Amex Rule 1000A-
AEMI). Thus, for example, when determining compliance with Commentaries 
.03(a)(B)(1) and (2) to Amex Rule 1000-AEMI and Commentaries 
.02(a)(B)(1) and (2) to Amex Rule 1000A-AEMI, component stocks that, in 
the aggregate, account for at least 90% of the remaining index weight, 
after excluding any Derivative Securities Products, would be required 
to have a minimum market value of at least $100 million and minimum 
worldwide monthly trading volume of 250,000 shares during each of the 
last six months, respectively. In addition, with respect to Commentary 
.03(a)(B)(3) to Amex Rule 1000-AEMI and Commentary .02(a)(B)(3) to Amex 
Rule 1000A-AEMI, when determining the component weight for the most 
heavily weighted stock and the five most heavily weighted component 
stocks for an underlying index that includes a Derivative Securities 
Product, the weight of such Derivative Securities Products included in 
the underlying index or portfolio would not be considered.
    In addition, the Exchange proposes to modify the requirements in 
Commentary .03(a)(B)(4) to Amex Rule 1000-AEMI and Commentary 
.02(a)(B)(4) to Amex Rule 1000A-AEMI, which provide that the underlying 
index or portfolio must include a minimum of 20 component stocks. 
Specifically, the Exchange proposes that there shall be no minimum 
number of component stocks if: (1) One or more series of ETFs 
constitute, at least in part, components underlying a series of ETFs; 
or (2) one or more series of Derivative Securities Products account for 
100% of the weight of the index or portfolio. Thus, for example, if the 
index or portfolio underlying a series of ETFs includes one or more 
series of ETFs, or if it consists entirely of other Derivative 
Securities Products, then there would not be required to be any minimum 
number of component stocks (i.e., one or more components comprising the 
underlying index or portfolio would be acceptable). However, if the 
index or portfolio consists of Derivative Securities Products other 
than ETFs (e.g., Commodity-Based Trust Shares or Currency Trust 
Shares), as well as securities that are not Derivative Securities 
Products (e.g., common stocks), then there would have to be at least 20 
components in the underlying index or portfolio.
    Consistent with current Commentary .03(a)(B)(5) to Amex Rule 1000-
AEMI and Commentary .02(a)(B)(5) to Amex Rule 1000A-AEMI, each 
component that is a U.S. Component Stock (which would include each 
Derivative Securities Product) would be required to be listed on a 
national securities exchange and be an NMS Stock, as defined in Rule 
600 under the Act, and each component that is a Non-US Component Stock 
(as defined in Amex Rules 1000-AEMI(b)(4) and 1000A-AEMI(b)(5)) \8\ 
would be required to be listed and traded on an exchange that has last-
sale reporting.
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    \8\ ``Non-US Component Stock'' is an equity security that is not 
registered under Section 12(b) or 12(g) of the Act and that is 
issued by an entity that (1) is not organized, domiciled, or 
incorporated in the United States, and (2) is an operating company 
(including Real Estate Investment Trusts and income trusts, but 
excluding investment trusts, unit trusts, mutual funds, and 
derivatives). See Amex Rules 1000-AEMI(b)(4) and 1000A-AEMI(b)(5).
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III. Discussion and Commission's Findings

    After careful review and based on the Exchange's representations, 
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.\9\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\10\ which requires, among other things, 
that the rules of an exchange be designed to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, 
protect investors and the public interest.
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    \9\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b)(5).
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    Under Commentary .03 to Amex Rule 1000-AEMI and Commentary .02 to 
Amex Rule 1000A-AEMI, one or more series of Derivative Securities 
Products may be included as a component comprising the index or 
portfolio underlying a series of ETFs.\11\ The Commission notes that, 
based on the trading characteristics of Derivative Securities Products, 
it may be difficult for component Derivative Securities Products to 
satisfy certain quantitative index criteria, such as the minimum market 
value and trading volume limitations. However, because Derivative 
Securities Products are themselves subject to specific initial and 
continued listing requirements, the Commission believes that it would 
be reasonable to exclude Derivative Securities Products, as components, 
when applying certain quantitative listing requirements related to the 
listing of PDRs and IFSs. For example, the index component eligibility 
standards for ETFs require, among others, that there be a minimum of 13 
component stocks in an underlying U.S. index or portfolio and a minimum 
of 20 component stocks in an international or global index or 
portfolio. If one or more series of ETFs constitutes, at least in part, 
a component of a U.S. or international index underlying a series of 
ETFs, the Commission believes that not requiring a minimum number of 
components underlying such overlying ETFs would be reasonable because 
each component ETF already requires a minimum of 13 or 20 component 
stocks, as the case may be. In addition, if the index or portfolio 
underlying a series of ETFs consists entirely of other component 
Derivative Securities Products, then there would be no required minimum 
number of component stocks. The Commission notes that, if a series of 
ETFs is based on the performance of an underlying index or portfolio 
composed, in part, of: (1) An ETF and another non-Derivative Securities 
Product (e.g., common stock), or (2) a Derivative Securities Product 
other than an ETF, then the minimum number of component stock 
requirement will continue to apply.
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    \11\ Under Commentary .03 to Amex Rule 1000-AEMI and Commentary 
.02 to Amex Rule 1000A-AEMI, a series of a Derivative Securities 
Product may be included as a U.S. Component Stock or Non-U.S. 
Component Stock underlying a series of PDRs or IFSs, respectively, 
so long as the shares of such series meet the definitions of U.S. 
Component Stock and Non-U.S. Component Stock, as applicable. See 
supra notes 6 and 8. See also Commentaries .03(a)(A)(5) and 
.03(a)(B)(5) to Amex Rule 1000-AEMI and Commentaries .02(a)(A)(5) 
and .02(a)(B)(5) to Amex Rule 1000A-AEMI (requiring that, in any 
event, all securities in the applicable index or portfolio must be a 
U.S. Component Stock listed on a national securities exchange and an 
NMS Stock, as defined in Rule 600 under the Act, or, in the case of 
an international or global index or portfolio, must be a Non-U.S. 
Component Stock that is listed and traded on an exchange that has 
last-sale reporting).
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    In addition, because component Derivative Securities Products may 
comprise 100% of the weight of any index underlying a series of ETFs, 
the Commission believes that providing for an exception to the 
concentration limits contained in Commentary .03(a)(A)(3) to Amex Rule 
1000-AEMI and Commentary .02(a)(A)(3) to Amex Rule 1000A-AEMI with 
respect to component Derivative Securities Products is reasonable. The 
Commission further notes that component Derivative

[[Page 29796]]

Securities Products that are U.S. Component Stocks comprising, at least 
in part, an index or portfolio underlying a series of Units must meet 
the definition of NMS Stock \12\ and already have been listed and 
trading on a national securities exchange pursuant to a proposed rule 
change approved by the Commission pursuant to Section 19(b)(2) of the 
Act \13\ or submitted by a national securities exchange pursuant to 
Section 19(b)(3)(A) of the Act,\14\ or would have been listed by a 
national securities exchange pursuant to the requirements of Rule 19b-
4(e) under the Act.\15\ Component Derivative Securities Products that 
are Non-U.S. Component Stocks comprising, at least in part, an 
international or global index or portfolio underlying a series of Units 
must already have been listed and trading on an exchange that has last-
sale reporting.
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    \12\ See supra note 7.
    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ See supra note 4.
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    The Commission believes that the proposed rule change will 
facilitate the listing and trading of additional types of exchange-
traded products that will enhance competition among market 
participants, to the benefit of investors and the marketplace. In 
addition, the listing and trading criteria set forth in the proposal 
are intended to protect investors and the public interest. The 
Commission notes that it has approved a substantively identical 
proposal of another national securities exchange.\16\ The Commission is 
not aware of any regulatory issue that should cause it revisit that 
finding and, as such, believes it is reasonable and consistent with the 
Act for the Exchange to modify the index component eligibility criteria 
for ETFs in the manner described in the proposal.
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    \16\ See Securities Exchange Act Release No. 57751 (May 1, 
2008), 73 FR 25818 (May 7, 2008) (SR-NYSEArca-2008-29).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-Amex-2008-30), as modified 
by Amendment No. 1 thereto, be, and it hereby is, approved.
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    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Florence E. Harmon,
Deputy Secretary.
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    \18\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E8-11424 Filed 5-21-08; 8:45 am]
BILLING CODE 8010-01-P