[Federal Register Volume 73, Number 231 (Monday, December 1, 2008)]
[Notices]
[Pages 72879-72882]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-28425]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59006; File No. SR-NYSEALTR-2008-08]
Self-Regulatory Organizations; NYSE Alternext US LLC; Notice of
Filing and Order Granting Accelerated Approval of Proposed Rule Change
Relating to the Listing and Trading of Managed Fund Share Options
November 24, 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 November 19, 2008, NYSE Alternext US LLC (``NYSE Alternext''
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 by the Exchange. The
Commission is publishing this notice and order to solicit comments on
the proposed rule change from interested persons and to approve the
proposed rule change on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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[[Page 72880]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to revise Commentary .06 to Rule 915 to
enable the listing and trading of options on Managed Fund Shares. The
text of the proposed rule change is available on the Exchange's Web
site at http://www.nyse.com, at the Exchange's principal office and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
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 self-regulatory
organization has prepared summaries, set forth in sections A, B, and C
below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to revise Commentary .06
to NYSE Alternext Rule 915 to enable the listing and trading of options
on managed fund shares (``Managed Fund Shares'') that are listed and
traded on a national securities exchange and are considered to be an
``NMS Stock'' (as defined in Rule 600 of Regulation NMS under the
Securities and Exchange Act of 1934 (the ``Act'')).
Managed Fund Shares are represent an interest in a registered
investment company (``Investment Company'') organized as an open-end
management investment company or similar entity.\3\ Unlike traditional
exchange traded funds, Managed Fund Shares are actively managed.
Managed Fund Shares, although, based upon a publicly disclosed
portfolio of securities, each trade as a single exchange-listed equity
security.
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\3\ See Securities Exchange Act Release No. 57514 (March 17,
2008), 73 FR 15230 (March 21, 2008)(Amex File No. SR-Amex-2008-
02)(order approving the listing and trading of Managed Fund Shares,
generally, and the listing and trading specifically of shares of the
Bear Stearns Current Yield Fund).
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Accordingly, rules pertaining to the listing and trading of
standard equity options will apply to Managed Fund Shares.
Listing Criteria
The Exchange will consider listing and trading options on Managed
Fund Shares provided the Managed Fund Shares that meet (1) the criteria
for underlying securities set forth in NYSE Alternext Rule 915(a) \4\
and (b) and Commentary .01 to Rule 915 \5\ or (2) the Managed Fund
Shares are available for creation and redemption each business day as
set forth in Commentary .06(a)(ii) to Rule 915.
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\4\ See NYSE Alternext Rule 915(a) which states that the
underlying securities shall be duly registered and be an ``NMS
Stock'' as defined in Rule 600 of Regulation NMS under the Act.
\5\ See Commentary .01(1) through (3) to NYSE Alternext Rule 915
which sets forth minimum requirements for the underlying security
which include, but are not limited to, 7,000,000 underlying shares,
2,000 shareholders, and trading volume of 2,400,000 shares over the
preceding twelve months.
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The Exchange proposes that Managed Fund Shares deemed appropriate
for options trading represent an interest in an open-end management
investment company or similar entity, as described below:
Managed Fund Shares are securities that represents an
interest in an Investment Company organized as an open-end management
investment company or similar entity, that invests in a portfolio of
securities selected by the Investment Company's investment adviser
consistent with the Investment Company's investment objectives and
policies, which is issued in a specified aggregate minimum number in
return for a deposit of a specified portfolio of securities and/or a
cash amount with a value equal to the next determined net asset value
(``NAV''), and when aggregated in the same specified minimum number,
may be redeemed at a holder's request, which holder will be paid a
specified portfolio of securities and/or cash with a value equal to the
next determined NAV.
For the purposes of Commentary .06(iv) to NYSE Alternext Rule 915,
Managed Fund Shares are a class of exchange-traded fund shares that are
actively managed as defined in NYSE Alternext Equities Rule
1000B(b)(1).\6\
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\6\ See supra note 3.
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Continued Listing Requirements
Options on Managed Fund Shares will be subject to all Exchange
rules governing the trading of equity options and furthermore, the
rules pertaining to position and exercise limits \7\ or margin \8\
shall apply. The current continuing or maintenance listing standards
for options traded on NYSE Alternext will continue to apply.
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\7\ Pursuant to NYSE Alternext Rule 904(a)(i), Managed Fund
Shares are subject to the same position limits applicable to options
on stocks and Exchange-Traded Fund Shares. NYSE Alternext Rule 905
stipulates that exercise limits for options on stocks and other
securities, including Managed Fund Shares, shall be the same as the
position limits applicable under NYSE Alternext Rule 904.
\8\ See NYSE Alternext Equities Rule 462 regarding margin
requirements.
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The Exchange will utilize its existing surveillance procedures
applicable to options on exchange traded funds (which will include
Managed Fund Shares) to monitor trading. In addition, the Exchange will
implement any new surveillance procedures it deems necessary to
effectively monitor the trading of options on Managed Fund Shares,
including adequate comprehensive surveillance sharing agreements
(``CSSA'') with markets trading in non-U.S. components,\9\ as
applicable. Also, the Exchange may obtain trading information via the
Intermarket Surveillance Group (``ISG'') \10\ from other exchanges who
are members or affiliates of the ISG. NYSE Alternext represents that
these procedures will be adequate to properly monitor Exchange trading
of options on these the securities and to deter and detect violations
of Exchange rules.
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\9\ See Commentary .06(b) to Rule 915, the Exchange's rule
governing the applicable CSSA requirements for options on exchange-
traded funds. We note that any non-U.S. component securities
(including fixed-income) in an index or portfolio of securities on
which the Fund Shares are based that are not subject to
comprehensive surveillance agreements may in the aggregate represent
an amount equal to 50% of the weight of the index or portfolio.
\10\ A complete list of the current members of the ISG, is
available at http://www.isgportal.org.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) \11\ of the Act, in general, and furthers the
objectives of Section 6(b)(5),\12\ in particular, in that it is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, and to remove impediments to and perfect the mechanisms of
a free and open market and a national market system, and, in general,
to protect investors and the public interest. The Exchange believes
that the proposed rules applicable to trading pursuant to
[[Page 72881]]
generic listing and trading criteria, together with the Exchange's
surveillance procedures applicable to trading in the securities covered
by the proposed rules, serve to foster investor protection.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change will impose no burden on competition that
is not necessary or appropriate in furtherance of the purposes of the
1934 Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
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 protected]. Please include
File Number SR-NYSEALTR-2008-08 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEALTR-2008-08.
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, 100 F Street,
NE., Washington, DC 20549, on official business days between the hours
of 10 a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEALTR-2008-08 and should
be submitted on or before December 22, 2008.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
After careful consideration, the Commission finds that the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange \13\ and, in particular, the requirements of Section 6 of the
Act.\14\ Specifically, the Commission finds that the proposed rule
change is consistent with Section 6(b)(5) of the Act,\15\ which
requires, among other things, that the rules of a national securities
exchange be designed to remove impediments to and perfect the mechanism
of a free and open market and a national market system and, in general,
to protect investors and the public interest.
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\13\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\14\ 15 U.S.C. 78f.
\15\ 15 U.S.C. 78f(b)(5).
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Listing and Trading of Options on Managed Fund Shares
As set out above, the Exchange's proposed rules include
requirements regarding initial and continued listing standards, the
creation/redemption process for Managed Fund Shares, and trading halts.
Managed Fund Shares must be traded through a national securities
exchange or through the facilities of a national securities
association, and must be ``NMS stock'' as defined under Rule 600 of
Regulation NMS.\16\
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\16\ 17 CFR 242.600(b)(47).
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The Commission notes that, pursuant to Commentary .06(a) to NYSE
Alternext Rule 915 and Commentary .07 to NYSE Alternext Rule 916,
Managed Fund Shares will be subject to the initial and continuing
eligibility standards for underlying securities provided in Alternext
Rule 915 and 916, as applicable. In particular, to be options eligible,
a Managed Fund Share must either meet the criteria and guidelines for
underlying securities set forth in Commentary .01 to NYSE Alternext
Rule 915, or alternately, the Managed Fund Share must be available for
creation or redemption each business day in cash or in kind from the
investment company, issuing trust, commodity pool or other entity at a
price related to the NAV. In addition, the investment company, issuing
trust, commodity pool or other entity shall provide that Managed Fund
Shares may be created even though some or all of the securities and/or
cash needed to be deposited have not been received by the unit
investment trust or the management investment company, provided the
authorized creation participant has undertaken to deliver the Managed
Fund Shares and/or cash as soon as possible and such undertaking has
been secured by the delivery and maintenance of collateral consisting
of cash or cash equivalents satisfactory to the fund which underlies
the option as described in the prospectus of the Managed Fund Share.
To continue to be eligible to underlie options, the Managed Fund
Share must remain an NMS stock listed on a national securities
exchange. The Exchange will also consider the suspension of opening
transactions in any series of options of the class covering Managed
Fund Shares where the Managed Fund Share does not satisfy the
requirements set out in Commentary .07 to NYSE Alternext Rule 916.
These include: (1) In the case of options on Managed Fund Shares
approved pursuant to paragraph (b) under Commentary .06 to NYSE
Alternext Rule 915, compliance with paragraphs (1) through (7) of
Commentary .01 to NYSE Alternext Rule 916; (2) following the initial
twelve-month period, beginning upon the commencement of trading of the
Managed Fund Shares on a national securities exchange and being defined
as an ``NMS stock'', there are fewer than 50 record and/or beneficial
holders of such Managed Fund Shares for 30 or more consecutive trading
days; (3) the value of the index or portfolio of securities, non-U.S.
currency, or portfolio of commodities including commodity futures
contracts, options on commodity futures contracts, swaps, forward
contracts, options on physical commodities and/or Financial Instruments
and Money Market Instruments on which the Managed Fund Shares are based
is no longer calculated or available. In addition, the Exchange retains
discretion to suspend opening transactions in options on
[[Page 72882]]
Managed Fund Shares where conditions make further dealings in such
options inadvisable.
Furthermore, the Exchange represented that options on Managed Fund
Shares will be subject to all Exchange rules governing the trading of
equity options and that the rules pertaining to position and exercise
limits \17\ or margin \18\ shall apply as well.
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\17\ See NYSE Alternext Rules 904(a)(i) and 905.
\18\ See NYSE Alternext Rule 462.
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Surveillance
The Commission notes that the Exchange has represented that it will
utilize its existing surveillance procedures applicable to options on
exchange traded funds, which would include Managed Fund Shares, to
monitor trading. In addition, the Exchange would implement any new
surveillance procedures it deems necessary to effectively monitor the
trading of options on Managed Fund Shares, including adequate
comprehensive surveillance sharing agreements (``CSSA'') with markets
trading in non-U.S. components,\19\ as applicable. Also, the Exchange
may obtain trading information via the Intermarket Surveillance Group
(``ISG'') \20\ from other exchanges who are members or affiliates of
the ISG. The Exchange represented that it believes that these
procedures will be adequate to properly monitor Exchange trading of
options on these the securities and to deter and detect violations of
Exchange rules. This order is based on these representations.
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\19\ See Commentary .06(b) to NYSE Alternext Rule 915, supra,
note 9.
\20\ A complete list of the current members of the ISG, is
available at http://www.isgportal.org.
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Accelerated Approval
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\21\ for approving the proposed rule change prior to the 30th
day after the date of publication of notice in the Federal Register.
The Commission notes this proposed rule change is substantively
identical to that of NYSE Arca, Inc. being concurrently approved today,
which was published for a 21-day comment period and generated no
comments.\22\ The Commission does not believe that this proposal raise
any new regulatory issues. Therefore, the Commission believes that
accelerating approval of this proposal should benefit investors by
permitting, without undue delay, options on Managed Fund Shares to
trade on NYSE Alternext.
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\21\ 15 U.S.C. 78s(b)(2).
\22\ See Exchange Act Release No. 58799 (October 16, 2008), 73
FR 63534 (October 24, 2008) (SR-NYSEArca-2008-108).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\23\ that the proposed rule change (SR-NYSEALTR-2008-08) be, and it
hereby is, approved on an accelerated basis.
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\23\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-28425 Filed 11-28-08; 8:45 am]
BILLING CODE 8011-01-P