[Federal Register: May 23, 2007 (Volume 72, Number 99)]
[Notices]
[Page 29022-29027]
[DOCID:fr23my07-105]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55780; File No. SR-NYSE-2007-37]

Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto
Relating to Generic Listing Standards for Series of Investment Company
Units Based on Fixed Income Indexes and Order Granting Accelerated
Approval of Proposed Rule Change as Amended

May 17, 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 March 29, 2007, the New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared substantially by the Exchange.
On May 9, 2007, the Exchange filed Amendment No. 1.\3\ This order
provides notice of the proposed rule change as modified by Amendment
No. 1 and approves the proposed rule change as amended on an
accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(l).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superseded the original filing
in its entirety.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to revise Section 703.16 of the NYSE Listed
Company Manual to include generic listing standards for series of
Investment Company Units (``ICUs'') that are based on indexes or
portfolios consisting of fixed income securities (``Fixed Income
Indexes'') or on composite indexes consisting of equity and fixed
income indexes or indexes or portfolios consisting of both equity and
fixed income securities (collectively, ``Combination Indexes'').
    The text of the proposed rule change is available at the NYSE, at
the Commission's Public Reference Room, and on the Exchange's Web site
at http://www.nyse.com.

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

    In its filing with the Commission, NYSE 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 the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to revise Section 703.16 of the NYSE Listed
Company Manual (``Manual'') to include generic listing standards for
series of ICUs (also referred to herein as ``exchange-traded funds'' or
``ETFs'') that are based on Fixed Income Indexes or on Combination
Indexes. This proposal will enable the Exchange to list and trade ETFs
pursuant to Rule 19b-4(e) under the Act \4\ if each of the conditions
set forth in Section 703.16 of the Manual is satisfied. Rule 19b-4(e)
provides that the listing and trading of a new derivative securities
product by a self-regulatory organization shall not be deemed a
proposed rule change, pursuant to paragraph (c)(1) of Rule 19b-4,\5\ if
the Commission has approved, pursuant to Section 19(b) of the Act,\6\
the self-regulatory organization's trading rules, procedures, and
listing standards for the product class that would include the new
derivatives securities product, and the self-regulatory organization
has a surveillance program for the product class.\7\
---------------------------------------------------------------------------

    \4\ 17 CFR 240.19b-4(e).
    \5\ 17 CFR 240.19b-4(c)(1).
    \6\ 15 U.S.C. 78s(b).
    \7\ When relying on Rule 19b-4(e), the SRO must submit Form 19b-
4(e) to the Commission within five business days after the exchange
begins trading the new derivative securities product. See 17 CFR
240.19b-4(e)(2)(ii).
---------------------------------------------------------------------------

Exchange-Traded Funds

    NYSE Rule 1100 and Section 703.16 of the Manual provide standards
for listing ICUs, which are securities issued by a unit investment
trust, an open-end management investment company (open-end mutual
fund), or similar entity based on a portfolio of stocks or fixed income
securities that seeks to provide investment results that correspond
generally to the price and yield performance of a specified foreign or
domestic stock index or fixed income securities index. Pursuant to
Section 703.16 of the Manual, ICUs must be issued in a specified
aggregate number in return for a deposit of specified securities and/or
a cash amount, with a value equal to the next determined net asset
value (``NAV''). When aggregated in the same specified minimum number,
ICUs must be redeemable by the issuer for the securities and/or cash,
with a value equal to the next determined NAV. The NAV is calculated
once a day after the close of the regular trading day.
    To meet the investment objective of providing investment returns
that correspond to the price, dividend, and yield performance of the
underlying index, an ETF may use a ``replication'' strategy or a
``representative sampling'' strategy with respect to the ETF portfolio.
An ETF using a replication strategy will invest in each security found
in the underlying index in about the same proportion as that security
is represented in the index itself. An ETF using a representative
sampling strategy will generally invest in a significant number, but
perhaps not all, of the component securities of the underlying index,
and will hold securities that, in the aggregate, are intended to
approximate the full index in terms of certain key characteristics. In
the context of a Fixed Income Index, such characteristics may include
liquidity, duration, maturity, and yield.
    In addition, an ETF portfolio may be adjusted in accordance with
changes in the composition of the underlying index or to maintain
compliance with requirements applicable to a regulated investment
company under the Internal Revenue Code (``IRC'').\8\
---------------------------------------------------------------------------

    \8\ For an ETF to qualify for tax treatment as a regulated
investment company, it must meet several requirements under the IRC.
Among these is the requirement that, at the close of each quarter of
the ETF's taxable year, (i) at least 50% of the market value of the
ETF's total assets must be represented by cash items, U.S.
government securities, securities of other regulated investment
companies, and other securities, with such other securities limited
for purposes of this calculation in respect of any one issuer to an
amount not greater than 5% of the value if the ETF's assets and not
greater than 10% of the outstanding voting securities of such
issuer; and (ii) not more than 25% of the value of its total assets
may be invested in the securities of any one issuer, or two or more
issuers that are controlled by the ETF (within the meaning of
Section 851(b)(4)(B) of the IRC) and that are engaged in the same or
similar trades or businesses or related trades or business (other
than U.S. government securities or the securities of other regulated
investment companies).

---------------------------------------------------------------------------

Generic Listing Standards for Exchange-Traded Funds

    The Exchange notes that the Commission has previously approved
generic listing standards for ETFs based on indexes that consist of
stocks listed on U.S. exchanges as well as on indexes consisting of
foreign stocks or both U.S. and foreign stocks.\9\ In addition, the
Commission has previously approved the listing and trading of ETFs
based on fixed income securities indexes.\10\
---------------------------------------------------------------------------

    \9\ In 1996, the Commission approved Section 703.16 of the
Listed Company Manual, which sets forth the rules related to the
listing of ICUs. See Securities Exchange Act Release No. 36923
(March 5, 1996), 61 FR 10410 (March 13, 1996) (SR-NYSE-95-23). In
2000, the Commission approved the Exchange's generic listing
standards for the listing and trading, or the trading pursuant to
unlisted trading privileges (``UTP''), of ICUs based on U.S. stock
indexes under Section 703.16 of the Manual and Exchange Rule 1100.
See Securities Exchange Act Release No. 43679 (December 5, 2000); 65
FR 77949 (December 13, 2000) (SR-NYSE-00-46). In 2007, the
Commission also approved the Exchange's generic listing standards
for the listing and trading, or the trading pursuant to UTP, of ICUs
based on foreign or global stock indexes. See Securities Exchange
Act Release No. 55113 (January 17, 2007), 72 FR 3179 (January 24,
2007) (SR-NYSE-2006-101).
    \10\ See Securities Exchange Act Release No. 46299 (August 1,
2002), 67 FR 51907 (August 9, 2002) (SR-NYSE-2002-26).
---------------------------------------------------------------------------

    The Exchange notes that the Commission has also approved listing
standards for other index-based derivatives that permit the listing--
pursuant to Rule 19b-4(e)--of such securities where the Commission had
previously approved the trading of specified index-based derivatives on
the same index, on the condition that all of the standards set forth in
the original order are satisfied by the exchange employing generic
listing standards.\11\
---------------------------------------------------------------------------

    \11\ See, e.g., Section 703.22 of the Manual and Securities
Exchange Act Release No. 55687 (May 1, 2007), 72 FR 25824 (May 7,
2007) (SR-NYSE-2007-27); NYSE Arca Equities Rule 5.2(j)(6) and
Securities Exchange Act Release No. 52204 (August 3, 2005), 70 FR
46559 (August 10, 2005) (SR-PCX-2005-63) (approving generic listing
standards for index-linked securities).
---------------------------------------------------------------------------

    The Exchange believes that adopting additional generic listing
standards for ETFs based on Fixed Income Indexes and Combination
Indexes and applying Rule 19b-4(e) should fulfill the intended
objective of that rule by allowing those ETFs that satisfy the proposed
generic listing standards to commence trading, without the need for
individualized Commission approval. The proposed rules have the
potential to reduce the time frame for bringing ETFs to market, thereby
reducing the burdens on issuers and other market participants. The
failure of a particular ETF to comply with the proposed generic listing
standards would not, however, preclude the Exchange from submitting a
separate filing pursuant to Section 19(b)(2) requesting Commission
approval to list and trade a particular ETF.

Fixed Income and Combination Index ETFs

Requirements for Listing and Trading Based on Fixed Income Indexes
    Exchange-traded funds listed pursuant to these generic standards
would be traded in all other respects under the Exchange's existing
trading rules and procedures that apply to all Exchange-listed
securities, including ETFs, and would be covered under the Exchange's
surveillance programs for equities.\12\
---------------------------------------------------------------------------

    \12\ See, e.g., NYSE Rule 1100.
---------------------------------------------------------------------------

    In order to list an ETF pursuant to the proposed generic listing
standards for Fixed Income Indexes, the index underlying the ETF must
satisfy all the conditions contained in proposed Section 703.16(D) of
the Manual. As with existing generic listing standards for ETFs based
on domestic and international or global indexes, the proposed generic
listing standards are intended to ensure that fixed income securities
with substantial market distribution and liquidity account for a
substantial portion of the weight of an index or portfolio. While the
standards in this proposal are loosely based on the standards contained
in Commission and Commodity Futures Trading Commission (``CFTC'') rules
regarding the application of the definition of narrow-based security
index to debt security indexes \13\ as well as existing fixed income
ETFs, they have been adapted as appropriate to apply generally to Fixed
Income Indexes for ETFs.
---------------------------------------------------------------------------

    \13\ See Securities Exchange Act Release No. 54106 (July 6,
2006), 71 FR 39534 (July 13, 2006) (File No. S7-07-06) (the ``Joint
Rules'').
---------------------------------------------------------------------------

Fixed Income Securities

    As proposed, Section 703.16(B)(3) defines the term ``Fixed Income
Securities'' to include notes, bonds (including convertible bonds),
debentures, or evidence of indebtedness that include, but are not
limited to, U.S. Department of Treasury securities (``Treasury
Securities''), government-sponsored entity securities (``GSE
Securities''), municipal securities, trust-preferred securities,\14\
supranational debt,\15\ and debt of a foreign country or subdivision
thereof. This new definition is designed to create a category of ETFs
based on Fixed Income Indexes that may be listed and traded pursuant to
Rule 19b-4(e) under the Act.
---------------------------------------------------------------------------

    \14\ Trust-preferred securities are undated cumulative
securities issued from a special purpose trust in which a bank or
bank holding company owns all of the common securities. The trust's
sole asset is a subordinated note issued by the bank or bank holding
company. Trust-preferred securities are treated as debt for tax
purposes so that the distributions or dividends paid are a tax-
deductible interest expense.
    \15\ Supranational debt represents the debt of international
organizations such as the World Bank, the International Monetary
Fund, regional multilateral development banks, and multilateral
financial institutions. Examples of regional multilateral
development banks include the African Development Bank, Asian
Development Bank, European Bank for Reconstruction and Development,
and the Inter-American Development Bank. In addition, examples of
multilateral financial institutions include the European Investment
Bank and the International Fund for Agricultural Development.
---------------------------------------------------------------------------

    For purposes of the proposed definition, a convertible bond is
deemed to be a Fixed Income Security up until the time that it is
converted into its underlying common or preferred stock.\16\ Once
converted, the equity security may no longer continue as a component of
a Fixed Income Index under the proposed rules, and accordingly, would
be removed from such index.
---------------------------------------------------------------------------

    \16\ The Exchange notes that, under the Section 3(a)(11) of the
Act, 15 U.S.C. 78c(a)(11), a convertible security is defined as an
equity security. However, for the purpose of the proposed generic
listing criteria, NYSE believes that defining a convertible security
(prior to its conversion) as a Fixed Income Security is consistent
with the objectives and intention of the generic listing standards
for fixed-income-based ETFs as well as the Act.
---------------------------------------------------------------------------

    The Exchange proposes that, to list a series of ICUs based on a
Fixed Income Index pursuant to the generic standards, the index must
meet the following criteria:
     The index or portfolio must consist of Fixed Income
Securities;
     Components that in aggregate account for at least 75% of
the weight of the index or portfolio must have a minimum original
principal amount outstanding of $100 million or more;
     No component Fixed Income Security (excluding a Treasury
Security or GSE Security) represents more than 30% of the weight of the
index, and the five highest weighted component fixed income securities
in the index do not in the aggregate account for more than 65% of the
weight of the index;
     An underlying index or portfolio (excluding one consisting
entirely of exempted securities) must include a minimum of 13 non-
affiliated issuers; and
     Component securities that in aggregate account for at
least 90% of the weight of the index or portfolio must be either:

     From issuers that are required to file reports pursuant to
Sections 13 and 15(d) of the Act; \17\
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78m and 78o(d).
---------------------------------------------------------------------------

     From issuers that have a worldwide market value of its
outstanding common equity held by non-affiliates of $700 million or
more;
     From issuers that have outstanding securities that are
notes, bonds, debentures, or evidences of indebtedness having a total
remaining principal amount of at least $1 billion;
     Exempted securities, as defined in Section 3(a)(12) of the
Act; \18\ or
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78c(a)(12).
---------------------------------------------------------------------------

     From issuers that are governments of foreign countries or
political subdivisions of foreign countries.
    The Exchange believes that these proposed component criteria
standards are reasonable for Fixed Income Indexes, and, when applied in
conjunction with the other listing requirements, would result in ETFs
that are sufficiently broad-based in scope.
    The Exchange notes that the proposed standards are similar to the
standards set forth by the Commission and the CFTC in the Joint Rules
as well as existing fixed-income-based ETFs. First, in the proposed
standards, component Fixed Income Securities that in the aggregate
account for at least 75% of the weight of the index or portfolio would
have to have a minimum original principal amount outstanding of at
least $100 million. Second, the proposed standards provide that the
most heavily weighted component security cannot exceed 30% of the
weight of the index or portfolio, consistent with the standard for U.S.
equity ETFs set forth in Section 703.16(C)(2)(a)(iii). In addition,
this standard is identical to the standard set forth by the Commission
and the CFTC in the Joint Rules.\19\ Third, in the proposed standards,
the five most heavily weighted component securities could not exceed
65% of the weight of the index or portfolio, consistent with the
standard for U.S. equity ETFs set forth in Section 703.16(C)(2)(a)(iii)
of the Manual as well as the Joint Rules. Fourth, the minimum number of
fixed income securities (except for portfolios consisting entirely of
exempted securities, such as Treasury Securities or GSE Securities)
from unaffiliated \20\ issuers in the proposed standards is 13,
consistent with the standard for U.S. equity ETFs set forth in Section
703.16(C)(2)(a)(iv) of the Manual and the Joint Rules. This requirement
together with the diversification standards set forth above would
provide assurance that the fixed income securities comprising an index
would not be overly dependent on the price behavior of a single
component or small group of components.
---------------------------------------------------------------------------

    \19\ See note 13 supra.
    \20\ Rule 405 under the Securities Act of 1933, 17 CFR 230.405,
defines an affiliate as a person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or
is under common control with, such person. Control, for this
purpose, is the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by
contract, or otherwise.
---------------------------------------------------------------------------

    Finally, the proposed standards would require that at least 90% of
the weight of the index or portfolio must be either (i) from issuers
that are required to file reports pursuant to Sections 13 and 15(d) of
the Act; \21\ (ii) from issuers that have a worldwide market value of
its outstanding common equity held by non-affiliates of $700 million or
more; (iii) from issuers that have outstanding securities that are
notes, bonds, debentures, or evidences of indebtedness having a total
remaining principal amount of at least $1 billion; (iv) exempted
securities, as defined in Section 3(a)(12) of the Act; \22\ or (v) from
issuers that are governments of foreign countries or political
subdivisions of foreign countries. This proposed standard is consistent
with a similar standard in the Joint Rules and is designed to ensure
that the component fixed income securities have sufficient publicly
available information.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78m and 78o(d).
    \22\ 15 U.S.C. 78c(a)(12).
---------------------------------------------------------------------------

    The proposed generic listing requirements for fixed income ETFs
would not require that component securities in an underlying index have
an investment-grade rating.\23\ In addition, the proposed requirements
would not require a minimum trading volume, due to the lower trading
volume that generally occurs in the fixed income markets as compared to
the equity markets.
---------------------------------------------------------------------------

    \23\ Cf. Joint Rules, 71 FR at 30538.
---------------------------------------------------------------------------

    The proposed standards would also provide that the Exchange could
not approve a series of fixed income ETFs under the proposed generic
listing requirements if such series seeks to provide investment results
that either exceed the performance of a specified index by a specified
multiple or that correspond to the inverse (opposite) of the
performance of a specified index by a specified multiple.

Requirements for Listing and Trading ETFs Based on Combination Indexes

    The Exchange also seeks to list and trade ETFs based on Combination
Indexes. An ETF listed pursuant to the generic standards for
Combination Indexes would be traded, in all other respects, under the
Exchange's existing trading rules and procedures that apply to all
Exchange-listed securities, including ETFs, and would be covered under
the Exchange's surveillance program for equities.
    To list an ETF pursuant to the proposed generic listing standards
for Combination Indexes, an index underlying an ICU must satisfy all
the conditions contained in proposed Section 703.16(E). These generic
listing standards are intended to ensure that securities with
substantial market distribution and liquidity account for a substantial
portion of the weight of both the equity and fixed income portions of
an index or portfolio.
    Proposed Section 703.16(E) would provide that the Exchange may
approve series of ICUs--based on a combination of indexes or a series
of component securities representing the U.S. or domestic equity
market, the international equity market, and the fixed income market--
for listing and trading pursuant to Rule 19b-4(e) under the Act. The
standards that an ETF would have to comply with are as follows: (i)
Such portfolio or combination of indexes has been described in an
exchange rule for the trading of options, ICUs, Index-Linked
Exchangeable Notes, or Index-Linked Securities that has been approved
by the Commission under Section 19(b)(2) of the Act, and all of the
standards set forth in the original order are satisfied; or (ii) the
equity portion and fixed income portion of the component securities
separately meet the criteria set forth in Section 703.16(C) (equities)
and proposed Section 703.16(D) (fixed income).
    The proposed standards would also provide that the Exchange could
not approve a series of ETFs based on a Combination Index under the
proposed generic listing requirements if such series seeks to provide
investment results that either exceed the performance of a specified
index by a specified multiple or that correspond to the inverse
(opposite) of the performance of a specified index by a specified
multiple.
    Index Methodology and Dissemination. The Exchange proposes to adopt
Sections 703.16(D)(2) and (E)(1) to establish requirements for index
methodology and dissemination in connection with Fixed Income and
Combination Indexes.
    If a broker-dealer is responsible for maintaining (or has a role in
maintaining) the underlying index, such

broker-dealer would be required to erect and maintain a ``firewall,''
in a form satisfactory to the Exchange, to prevent the flow of non-
public information regarding the underlying index from the personnel
involved in the development and maintenance of such index to others
such as sales and trading personnel.
    With respect to index dissemination, the Exchange proposes to adopt
Sections 703.16(D)(2)(b) and (E)(1)(b) of the Manual. Section
703.16(D)(2)(b) would require that the index value for an ETF listed
pursuant to the proposed standards for fixed income ETFs be widely
disseminated by one or more major market data vendors at least once a
day. If the index value does not change during some or all of the
period when trading is occurring on the Exchange, the last official
calculated index value must remain available throughout Exchange
trading hours. This reflects the nature of the fixed income markets as
well as the frequency of intra-day trading information with respect to
Fixed Income Indexes. If an ETF is based on a Combination Index,
pursuant to proposed Section 703.16(E)(1)(b), the index would have to
be widely disseminated by one or more major market data vendors at
least every 15 seconds during the time when the ETF shares trade on the
Exchange to reflect updates for the prices of the equity securities
included in the Combination Index. The fixed income portion of the
Combination Index would have to be updated at least daily.
    Application of General Rules. Section 703(16)(F) would be added to
identify those requirements for ETFs that would apply to all such
series of ICUs based on Fixed Income or Combination Indexes. This would
include the dissemination of the Intraday Indicative Value, an estimate
of the value of a share of each ETF, updated at least every 15 seconds.
In addition, Section 703.16(F)(2) would provide that paragraph (C)(5)
of Section 703.16, which requires the Exchange to implement written
surveillance procedures applicable to a series of ICUs, would apply to
series of ICUs based on Fixed Income or Combination Indexes.
    The Exchange states that the Commission has approved generic
standards providing for the listing pursuant to Rule 19b-4(e) of other
derivative products based on indexes described in rule changes
previously approved by the Commission under Section 19(b)(2) of the
Act. The Exchange proposes to include in the generic standards for the
listing of ICUs based on Fixed Income and Combination Indexes, in
Section 703.16(E), indexes described in exchange rules approved by the
Commission in connection with the listing of options, Investment
Company Units, Index-Linked Exchangeable Notes, or Index-Linked
Securities. The Exchange believes that the application of that standard
to ETFs is appropriate because the underlying index would have been
subject to Commission review in the context of the approval of listing
of other derivatives.\24\
---------------------------------------------------------------------------

    \24\ See supra notes 10 and 11.
---------------------------------------------------------------------------

    The Exchange notes that current Section 703.16(E), which includes
continued listing criteria applicable to ICUs, would be re-designated
as Section 703.16(H), and this provision would apply to a series of
ICUs based on Fixed Income or Combination Indexes.
    The Exchange further notes that current Section 703.16(A)(6) of the
Manual provides that, in connection with approving an ETF issuer for
listing on the Exchange, the Exchange will obtain a representation from
the ETF issuer that the NAV per share will be calculated each business
day and made available to all market participants at the same time.
    The trading halt or suspension requirements for existing ETFs
contained in current Rule 1100(f) will similarly apply to fixed income
and combination index ETFs.
    The Exchange represents that its surveillance procedures are
adequate to properly monitor the trading of ICUs listed pursuant to the
proposed new listing standards or traded pursuant to unlisted trading
privileges. In addition, the Exchange has a general policy prohibiting
the dissemination of material, non-public information by its employees.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act \25\ in general, and furthers the objectives of Section
6(b)(5) of the Act \26\ 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, 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.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The Exchange believes that the proposed rule change would impose no
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.

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

    The Exchange has neither solicited nor received comments on this
proposal.

III. 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<EMAIL_ADDRESS>Please include

File Number SR-NYSE-2007-37 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NYSE-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 NYSE. 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-NYSE-2007-37
and should be submitted on or before June 7, 2007.

IV. Discussion

    After careful review, the Commission finds that the proposed rule
change, as amended, is consistent with the requirements of the Act and
the rules and regulations thereunder applicable to a national
securities exchange.\27\ In particular, the Commission finds that the
proposal is consistent with Section 6(b)(5) of the Act \28\ 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, 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.
---------------------------------------------------------------------------

    \27\ In approving this rule change, the Commission notes that it
has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
    \28\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Currently, the Exchange would have to file a proposed rule change
with the Commission pursuant to Section 19(b)(1) of the Act \29\ and
Rule 19b-4 thereunder \30\ to list or trade any ETF based on a Fixed
Income Index or on a Combination Index. The Exchange also would have to
file a proposed rule change to list or trade an ETF based on a Fixed
Income or Combination Index described in an exchange rule previously
approved by the Commission as an underlying benchmark for a derivative
security. Rule 19b-4(e), however, provides that the listing and trading
of a new derivative securities product by an SRO will not be deemed a
proposed rule change pursuant to Rule 19b-4(c)(1) if the Commission has
approved, pursuant to Section 19(b) of the Act, the SRO's trading
rules, procedures, and listing standards for the product class that
would include the new derivative securities product, and the SRO has a
surveillance program for the product class. The Exchange's proposed
rules for the listing and trading of ETFs pursuant to Rule 19b-4(e)
based on (1) certain indexes with components that include Fixed Income
Securities or (2) indexes or portfolios described in exchange rules
previously approved by the Commission as underlying benchmarks for
derivative securities fulfill these requirements. Use of Rule 19b-4(e)
by NYSE to list and trade such ETFs should promote competition, reduce
burdens on issuers and other market participants, and make such ETFs
available to investors more quickly.\31\
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78s(b)(1).
    \30\ 17 CFR 240.19b-4.
    \31\ The Commission notes that failure of a particular ETF to
satisfy the Exchange's generic listing standards does not preclude
the Exchange from submitting a separate proposal under Rule 19b-4 to
list and trade such ETF.
---------------------------------------------------------------------------

    The Commission previously has approved generic listing standards
for another exchange, Amex, that are substantially similar to those
proposed here by NYSE.\32\ This proposal does not appear to raise any
novel regulatory issues. Therefore, the Commission finds that NYSE's
proposal is consistent with the Act on the same basis that it approved
Amex's generic listing standards for ETFs based on Fixed Income or
Combination Indexes or on indexes or portfolios described in exchange
rules that have previously been approved by the Commission and underlie
derivative securities.
---------------------------------------------------------------------------

    \32\ See Securities Exchange Act Release No. 55434 (March 9,
2007), 72 FR 12233 (March 15, 2006) (SR-Amex-2006-118) (approving
generic listing standards for series of ETFs based on Fixed Income
and Combination Indexes).
---------------------------------------------------------------------------

    Proposed Sections 703.16(D) and 703.16(E) of the Manual establish
the standards for the composition of a Fixed Income Index or
Combination Index underlying an ETF. The Commission believes that these
standards are reasonably designed to ensure that a substantial portion
of any underlying index or portfolio consists of securities about which
information is publicly available, and that when applied in conjunction
with the other applicable listing requirements, will permit the listing
and trading only of ETFs that are sufficiently broad-based in scope to
minimize potential manipulation. The Commission further believes that
the proposed listing standards are reasonably designed to preclude NYSE
from listing and trading ETFs that might be used as a surrogate for
trading in unregistered securities.
    The proposed generic listing standards also will permit NYSE to
list and trade an ETF if the Commission previously has approved an
exchange rule that contemplates listing and trading a derivative
security based on the same underlying index. NYSE would be able to rely
on that earlier approval order, provided that NYSE complies with the
commitments undertaken by the other SRO set forth in the prior order,
including any surveillance-sharing arrangements.
    The Commission believes that NYSE's proposal is consistent with
Section 11A(a)(1)(C)(iii) of the Act,\33\ 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. The value of a Fixed Income Index underlying underlying an
ETF listed pursuant to this proposal is required to be widely
disseminated by one or more major market data vendors at least once a
day. Likewise, the value of an underlying Combination Index is required
to be widely disseminated by one or more major market data vendors at
least once every 15 seconds during the time when the corresponding ETF
trades on the Exchange, provided that, with respect to the fixed income
components of the Combination Index, the impact on the index is
required to be updated only once each day.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    Furthermore, 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. If a broker-dealer is
responsible for maintaining (or has a role in maintaining) the
underlying index, such broker-dealer would be required to erect and
maintain a ``firewall,'' in a form satisfactory to the Exchange, to
prevent the flow of non-public information regarding the underlying
index from the personnel involved in the development and maintenance of
such index to others such as sales and trading personnel. The
Commission also notes that current Section 703.16(A)(6) of the Manual
provides that, in connection with approving an ETF issuer for listing
on the Exchange, the Exchange will obtain a representation from the ETF
issuer that the NAV per share will be calculated each business day and
made available to all market participants at the same time.
    The Commission also believes that the Exchange's trading halt rules
are reasonably designed to prevent trading in an ETF when transparency
is impaired. NYSE Rule 1100(f)(1) provides that, when the Exchange is
the listing market, if the IIV or index value applicable to an ETF is
not disseminated as required, the Exchange may halt trading during the
day in which the interruption occurs. If the interruption continues,
then the Exchange will halt trading no later than the beginning of the
next trading day. Also, the Exchange may commence delisting proceedings
in the event that

the value of the underlying index is no longer calculated or available.
    The Exchange will implement written surveillance procedures for
ETFs based on Fixed Income Indexes or Combination Indexes.\34\ In
approving this proposal, the Commission relied on NYSE's representation
that its surveillance procedures are adequate to properly monitor the
trading of ICUs listed pursuant to this proposal. This approval is
conditioned on the continuing accuracy of that representation.
---------------------------------------------------------------------------

    \34\ See proposed Section 703.16(F)(2).
---------------------------------------------------------------------------

Acceleration

    The Commission finds good cause for approving the proposed rule
change, as amended, prior to the 30th day after the date of publication
of the notice of filing thereof in the Federal Register. The Commission
notes that NYSE's proposal is substantially similar to an Amex proposal
that has been approved by the Commission.\35\ The Commission does not
believe that NYSE's proposal raises any novel regulatory issues and,
therefore, believes that good cause exists for approving the filing
before the conclusion of a notice-and-comment period. Accelerated
approval of the proposal will expedite the listing and trading of
additional ETFs by the Exchange, subject to consistent and reasonable
standards. Therefore, the Commission finds good cause, consistent with
Section 19(b)(2) of the Exchange Act,\36\ to approve the proposed rule
change, as amended, on an accelerated basis.
---------------------------------------------------------------------------

    \35\ See supra note 32.
    \36\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\37\ that the proposed rule change (SR-NYSE-2007-37), as
amended, be, and it hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------

    \37\ Id.

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\38\
---------------------------------------------------------------------------

    \38\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E7-9874 Filed 5-22-07; 8:45 am]

BILLING CODE 8010-01-P