

[Federal Register: November 17, 2006 (Volume 71, Number 222)]
[Notices]               
[Page 66993-66998]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17no06-90]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54739; File No. SR-Amex-2006-78]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Granting Accelerated Approval to Proposed Rule Change and Amendment No. 
1 Thereto and Notice of Filing and Order Granting Accelerated Approval 
to Amendment No. 2 Thereto Relating to Generic Listing Standards for 
Series of Portfolio Depositary Receipts and Index Fund Shares Based on 
International or Global Indexes

November 9, 2006.

I. Introduction

    On August 18, 2006, the American Stock Exchange LLC (``Amex'' or

[[Page 66994]]

``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to adopt generic listing 
standards pursuant to Rule 19b-4(e) \3\ for series of portfolio deposit 
receipts (``PDRs'') and index fund shares (``IFSs'') based on 
international or global indexes. On October 12, 2006, Amex submitted 
Amendment No. 1 to the proposal.\4\ The proposed rule change and 
Amendment No. 1 thereto were published for comment in the Federal 
Register on October 19, 2006 for a 15-day comment period.\5\ The 
Commission received one comment letter.\6\ On November 6, 2006, Amex 
submitted Amendment No. 2 to the proposal.\7\ This order approves the 
proposed rule change, as amended, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(l).
    \2\ 17 CFR 240. 19b-4.
    \3\ 17 CFR 240.19b-4(e).
    \4\ In Amendment No. 1, Amex revised the proposed rule text and 
clarified certain aspects of its proposal.
    \5\ See Securities Exchange Act Release No. 54595 (October 12, 
2006), 71 FR 61811.
    \6\ See letter from Ira P. Shapiro, Principal and Associate 
General Counsel, Barclays Global Investors (``BGI''), dated October 
29, 2006 (``BGI Comment Letter'').
    \7\ In Amendment No. 2, Amex clarified the nature of its 
surveillance procedures applicable to ETFs that may be listed and 
traded pursuant to the proposed rule change.
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II. Description of Proposal

    As explained more fully in the notice of the proposed rule change, 
the Exchange proposes to revise Amex Rules 1000 and 1000A to include 
generic listing standards for series of PDRs and IFSs that are based on 
international or global indexes.\8\ Additionally, the Exchange proposes 
to revise Amex Rules 1000 and 1000A to include generic listing 
standards for PDRs and IFSs (PDRs and IFSs together referred to as 
``exchange-traded funds'' or ``ETFs'') that are based on indexes or 
portfolios previously approved by the Commission as an underlying 
benchmark for the trading of PDRs, IFSs, options or other specified 
index-based securities. Finally, Amex proposes other minor clarifying 
changes to Amex Rules 1000, 1002, 1000A and 1002A.\9\
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    \8\ 8 Amex Rules 1000 et seq. allow for the listing and trading 
on the Exchange of PDRs, which represent interests in a unit 
investment trust registered under the Investment Company Act of 1940 
(``1940 Act'') that operates on an open-end basis and that holds the 
securities that comprise an index or portfolio. Amex Rules 1000A et 
seq. provide standards for the listing and trading of IFSs, which 
are securities issued by an open-end management investment company 
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.
    \9\ The standards set out in Commentary .03(a)(A) to Rule 1000 
and Commentary .02(a)(A) to Rule 1000A are being modified to make 
the wording of each requirement consistent; in addition, standard 
(5) of these Commentaries has been modified to reflect the 
Commission's adoption of Regulation NMS, 17 CFR 242.600 et seq. 
Proposed Commentary .03(b)(iv) to Rule 1000 and Commentary 
.02(b)(iv) to Rule 1000A have been added to require that entities 
that advise index providers or calculators and related entities have 
in place procedures designed to prevent the use and dissemination of 
material non-public information regarding the index underlying the 
ETF.
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    Specifically, the Exchange proposes to revise Commentary .03 to 
Rule 1000 and Commentary .02 to Rule 1000A to include generic listing 
standards for series of ETFs that are based on international or global 
indexes, or on indexes previously approved by the Commission under 
Section 19(b)(2) of the Exchange Act for the trading of ETFs, options 
or other index-based securities. This proposal will enable the Exchange 
to list and trade ETFs pursuant to Rule 19b-4(e) \10\ of the Exchange 
Act if each of the conditions set forth in Commentary .03 to Rule 1000 
or Commentary .02 to Rule 1000A is satisfied. Rule 19b-4(e) 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 paragraph (c)(1) of Rule 19b-4, if the 
Commission has approved, pursuant to Section 19(b) of the Exchange Act, 
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.\11\
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    \10\ 17 CFR 240.19b-4(e).
    \11\ When relying on Rule 19b-4(e), the SRO must submit Form 
19b-4(e) to the Commission within five business days after the SRO 
begins trading the new derivative securities products. See 
Securities Exchange Act Release No. 40761 (December 8, 1998), 63 FR 
70952 (December 22, 1998).
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    To list a PDR or an IFS pursuant to the proposed generic listing 
standards for international or global indexes, the index underlying the 
PDR or IFS must satisfy all the conditions in Commentary .03 to Rule 
1000 (for PDRs) or proposed Commentary .02 to Rule 1000A (for IFSs). As 
with the existing generic listing standards for ETFs based on domestic 
indexes, the Exchange states that these generic listing standards are 
intended to ensure that stocks with substantial market capitalization 
and trading volume account for a substantial portion of the weight of 
an index or portfolio.
    As proposed, the definition section of each of Rule 1000 and Rule 
1000A would be revised to include definitions of U.S. Component Stock 
and Non-US Component Stock. These new definitions would provide the 
basis for the standards for indexes with either domestic or 
international stocks, or a combination of both. A ``Non-US Component 
Stock'' would mean an equity security issued by an entity that: (a) Is 
not organized, domiciled or incorporated in the United States; (b) is 
not registered under Section 12(b) or 12(g) of the Exchange Act; and 
(c) is an operating company (including Real Estate Investment Trusts 
(REITS) and income trusts, but excluding investment trusts, unit 
trusts, mutual funds, and derivatives). This definition is designed to 
create a category of component stocks that are issued by companies that 
are not based in the U.S., but that also are not subject to oversight 
through Commission registration, and would include sponsored Global 
Depositary Receipts (``GDRs'') and European Depositary Receipts 
(``EDRs''). A ``US Component Stock'' would mean an equity security that 
is registered under Section 12(b) or 12(g) of the Exchange Act.
    The Exchange proposes that to list an ETF based on an international 
or global index or portfolio pursuant to the generic listing standards, 
such index or portfolio must meet the following criteria:
     Component stocks that in the aggregate account for at 
least 90% of the weight of the index or portfolio shall have a minimum 
market value \12\ of at least $100 million (Rule 1000, Commentary 
.03(a)(B)(1) and Rule 1000A, Commentary .02(a)(B)(1)); \13\
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    \12\ The Exchange stated for purposes of this filing that 
``market value'' is calculated by multiplying the total shares 
outstanding by the price per share of the component stock.
    \13\ The BGI Comment Letter notes that certain no-action relief 
provided by Commission staff under the Exchange Act (the ``ETF No-
Action Letters'') uses a public float standard, rather than this 
market value standard, and suggests consistency. The Exchange notes 
that the ETF No-Action Letters address separate regulatory 
objectives but is willing to examine modifications to its listing 
standards in the future. Telephone conference among Marija Willen, 
Vice President and Associate General Counsel, Amex, Scott Ebner, 
Vice President, Amex, Florence Harmon, Senior Special Counsel, 
Division of Market Regulation (``Division''), Commission, and Brian 
Trackman, Special Counsel, Division, Commission, on November 6, 2006 
(``November 6 Telephone Conference'').
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     Component stocks representing at least 90% of the weight 
of the index or portfolio shall have a minimum worldwide monthly 
trading volume \14\

[[Page 66995]]

during each of the last six months of at least 250,000 shares \15\ 
(Rule 1000, Commentary .03(a)(B)(2) and Rule 1000A, Commentary 
.02(a)(B)(2)); \16\
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    \14\ The BGI Comment Letter requested clarification that 
``worldwide monthly trading volume'' includes any shares underlying 
American Depositary Receipts (``ADRs'') traded in the U.S. In 
response, the Exchange states that any trading of shares represented 
by ADRs, GDRs, or EDRs, which are traded on a market with last sale 
reporting, would be included in the calculation of worldwide monthly 
trading volume. See November 6 Telephone Conference, supra note 13.
    \15\ The BGI Comment Letter asserts that it would be less 
arbitrary to measure trading volume in terms of dollars rather than 
shares. The Exchange notes that the share trading volume criteria is 
consistent with the existing generic listing standards for ETFs 
based on domestic indexes and other listing standards for derivative 
products, and the Commission believes the Exchange's choice is 
consistent with the Act. Nevertheless, the Exchange is willing to 
examine the dollar volume criteria in the future. See November 6 
Telephone Conference, supra note 13.
    \16\ 16 The BGI Comment Letter notes that the ETF No-Action 
Letters measure liquidity of components in the index or portfolio 
differently than Amex's proposed rules measure liquidity. The 
Exchange notes that the ETF No-Action Letters address separate 
regulatory objectives but is willing to examine modifications to its 
listing standards in the future. See November 6 Telephone 
Conference, supra note 13.
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     The most heavily weighted component stock may not exceed 
25% of the weight of the index or portfolio and the five most heavily 
weighted component stocks may not exceed 60% of the weight of the index 
or portfolio (Rule 1000, Commentary .03(a)(B)(3) and Rule 1000A, 
Commentary .02(a)(B)(3));
     The index or portfolio shall include a minimum of 20 
component stocks (Rule 1000, Commentary .03(a)(B)(4) and Rule 1000A, 
Commentary .02(a)(B)(4)); and
     Each US Component Stock in the index or portfolio shall be 
listed on a national securities exchange and shall be an NMS Stock as 
defined in Rule 600 of Regulation NMS under the Exchange Act, and each 
Non-US Component Stock in the index or portfolio shall be listed on an 
exchange that has last-sale reporting (Rule 1000, Commentary 
.03(a)(B)(5) and Rule 1000A, Commentary .02(a)(B)(5)).\17\
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    \17\ The BGI Comment Letter questioned which non-U.S. exchanges 
have systems for ``last-sale reporting.'' In this regard, the 
Exchange states, when considering whether an ETF meets its listing 
standards, that it will use several methods to determine whether a 
non-U.S. exchange has last-sale reporting. For example, the Exchange 
states that it will evaluate whether execution prices are available 
for transactions in securities listed and traded on such exchange. 
The Exchange further states that last-sale reporting is easily 
verified through major market data vendors and other entities. In 
addition, the Exchange states that many index providers have 
policies to include index components only from foreign exchanges 
where pricing, transaction reporting, and corporate news are 
sufficiently transparent and widely disseminated. See November 6 
Telephone Conference, supra note 13.
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    The Exchange also proposes to include in the generic listing 
standards for the listing of ETFs, in new Commentary .03(a)(C) to Rule 
1000 and Commentary .02(a)(C) to Rule 1000A, indexes that have been 
approved by the Commission as underlying benchmarks in connection with 
the listing of options, PDRs, IFSs, Index-Linked Exchangeable Notes, or 
Index-Linked Securities.\18\
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    \18\ BGI questions requiring comprehensive surveillance sharing 
agreements (``CSSAs'') with the home country market for the 
underlying index components in proposed Commentary .03(a)(C) to Amex 
Rule 1000 and Commentary .02(a)(C) to Amex Rule 1000A. The standards 
set out in paragraph (B) of both Commentaries do not require a CSSA 
with the home country market because they provide for minimum levels 
of liquidity, concentration and pricing transparency for index 
components. If an ETF is based on an index whose components do not 
satisfy these composition criteria, it may be listed pursuant to 
paragraph (C) of both Commentaries if the Commission has previously 
approved the index or portfolio in connection with the listing and 
trading of another derivative product. To the extent that the 
Commission's approval of that index or portfolio required CSSAs, 
that requirement must also be satisfied. See November 6 Telephone 
Conference, supra note 13.
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    The Exchange also proposes to modify Commentary .03(b)(iii) to Rule 
1000 and Commentary .02(b)(iii) to Rule 1000A to require that the index 
value for all ETFs listed pursuant to the proposed standards for 
international and global indexes (or otherwise approved by the 
Commission) be widely disseminated by one or more major market data 
vendors at least every 60 seconds during the time when the ETF trades 
on the Exchange. If the index value does not change during some or all 
of the period when trading is occurring on the Exchange, the last 
official calculated index value must remain available throughout 
Exchange trading hours. Index values for ETFs listed pursuant to the 
standards for domestic indexes (or otherwise approved by the 
Commission) must be disseminated at least every 15 seconds during the 
trading day. The proposed modification to this requirement for ETFs 
based on international or global indexes reflects that, in some 
instances, the frequency of intra-day trading information is limited 
with respect to Non-US Component Stocks and that, in many cases, 
trading hours for overseas markets overlap only in part, or not at all, 
with Exchange trading hours.
    In addition, Commentary .03(c) to Rule 1000 and Commentary .02(c) 
to Rule 1000A are being modified to define the term ``Intraday 
Indicative Value'' as the estimate that is updated at least every 15 
seconds of the value of a share of each ETF, for ease of reference in 
these rules. A similar change is also proposed in Rules 1002 and 1002A, 
which are the continued listing standards for these and other ETFs. The 
Exchange also proposes to clarify in Commentary .03(c) to Rule 1000 and 
Commentary .02(c) to Rule 1000A that the Intraday Indicative Value will 
be updated during the hours the ETF shares trade on the Exchange to 
reflect changes in the exchange rate between the U.S. dollar and the 
currency in which any component stock is denominated for all ETFs based 
on global or international indexes.
    The Exchange is also proposing to add a subsection (i) to 
Commentary .03 to Rule 1000 and a subsection (j) to Commentary .02 to 
Rule 1000A regarding the creation and redemption process for ETFs and 
compliance with Federal securities laws for ETFs listed pursuant to the 
generic listing standards for international and global indexes. These 
new subsections will apply to PDRs listed pursuant to Commentary 
.03(a)(B) or (C) and for IFSs listed pursuant to Commentary .02(a)(B) 
or (C).
    For the listing and trading of all ETFs, whether or not by generic 
listing standards, the Exchange is also proposing to include 
additional, continued listing standards relating to ETFs that 
substitute new indexes, either in the instance where the value of the 
index or portfolio of securities on which the ETF is based is no longer 
calculated or available, or in the event that the ETF chooses to 
substitute a new index or portfolio for the existing index or 
portfolio. In both instances, the Exchange would commence delisting 
proceedings if the new index or portfolio does not meet the standards 
set forth in Rules 1000 et seq. or Rules 1000A et seq., as 
applicable.\19\ If, for example, an ETF chose to substitute an index 
that did not meet any of the generic listing standards for listing of

[[Page 66996]]

ETFs pursuant to Rule 19b-4(e),\20\ then for continued listing, 
approval by the Commission of a separate filing pursuant to Section 
19(b)(2) \21\ to list and trade that ETF would be required.\22\
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    \19\ The BGI Comment Letter requested clarification of when an 
index is ``no longer calculated or available'' and in such event, 
why a ``substantially similar'' substituted index could not satisfy 
the dissemination requirements of the listing standards. In 
response, the Exchange notes that many indexes change components 
periodically based on a specified methodology. Index turnover, 
consistent with such an index methodology, may not constitute an 
index substitution triggering possible delisting of the ETF. 
However, if the index underlying the ETF is substituted with a new 
index or the specified index methodology is substantially changed 
from the announced methodology under which the product was listed, 
the Exchange acknowledges that it must either file a new Form 19b-
4(e) or the listing and trading of the derivative product is a 
proposed rule change pursuant to Section 19(b)(2) of the Exchange 
Act, 15 U.S.C. 78s(b)(2). See November 6 Telephone Conference, supra 
note 13.
    \20\ 17 CFR 240.19b-4(e).
    \21\ 15 U.S.C. 78s(b)(2).
    \22\ The Exchange notes that this is not a new requirement under 
the Exchange Act. The Exchange acknowledges that transparency of the 
index methodology is necessary for effective pricing of the 
derivative product and investor protection. See November 6 Telephone 
Conference, supra note 13.
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    The Exchange proposes to modify the initial and continued listing 
standards for all ETFs relating to disseminated information to 
formalize in the rules existing best practices for providing equal 
access to material information about the value of ETFs. Pursuant to 
Rules 1002(a)(ii) and 1002A(a)(ii), prior to approving an ETF for 
listing, the Exchange will obtain a representation from the ETF issuer 
that the net asset value (``NAV'') per share will be calculated daily 
and made available to all market participants at the same time.
    In addition, proposed Rules 1002(b)(ii) and 1002A(b)(ii) establish 
that if the Intraday Indicative Value (as defined in Commentary .03 to 
Rule 1000 and Commentary .02 to Rule 1000A) or the index value 
applicable to that series of ETFs is not being disseminated as 
required, the Exchange may halt trading during the day in which the 
interruption to the dissemination of the Intraday Indicative Value or 
the index value occurs. If the interruption to the dissemination of the 
Intraday Indicative Value or the index value persists past the trading 
day in which it occurred, the Exchange will halt trading no later than 
the beginning of the trading day following the interruption.
    With regard to trading, ETFs listed under the proposed standards 
will be subject to Amex rules and procedures that govern the trading of 
ETFs and the trading of equity securities on the Amex, including among 
others, rules and procedures governing trading halts, disclosures to 
members, responsibilities of the specialist, account opening and 
customer suitability requirements, the election of a stop or limit 
order, and margin.\23\
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    \23\ See Amex Rules 1000 through 1006 and 1000A through 1005A.
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    The Exchange represents that its surveillance procedures are 
adequate to properly monitor the trading of the PDRs and IFSs listed 
pursuant to the proposed new listing standards. Specifically, the Amex 
will rely on its existing surveillance procedures governing PDRs and 
IFSs. In addition, the Exchange has a general policy prohibiting the 
distribution of material, non-public information by its employees.

III. Discussion and Commission Findings

    After careful review, including consideration of the BGI Comment 
Letter, the Commission finds that the proposed rule change, as amended, 
is consistent with the requirements of the Exchange Act, in general, 
and the rules and regulations thereunder applicable to a national 
securities exchange.\24\ In particular, the Commission finds that the 
proposed rule change, as amended, is consistent with Section 6(b)(5) of 
the Exchange Act,\25\ in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.
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    \24\ 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).
    \25\ 15 U.S.C. 78f(b)(5).
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Generic Listing Standards for Exchange-Traded Funds

    To list ETFs based on international or global indexes, or on 
indexes or portfolios previously approved by the Commission as an 
underlying benchmark for a derivative security, the Amex currently must 
file a proposed rule change with the Commission pursuant to Section 
19(b)(1) of the Exchange Act and Rule 19b-4 thereunder. However, Rule 
19b-4(e) provides that the listing and trading of a new derivative 
securities product by a 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 based on international or global indexes pursuant 
to Rule 19b-4(e) fulfills these requirements.
    The Amex's ability to rely on Rule 19b-4(e) to list ETFs that meet 
the requirements of Commentary .03 to Amex Rule 1000 or Commentary .02 
to Amex Rule 1000A potentially reduces the time frame for bringing 
these securities to the market, thereby reducing the burdens on issuers 
and other market participants and promoting competition and making ETFs 
based on global or international indexes available to investors more 
quickly.
    The Commission has previously approved generic listing standards 
pursuant to Rule 19b-4(e) \26\ of the Exchange Act for ETFs based on 
indexes that consist of stocks listed and traded on U.S. exchanges.\27\ 
The Commission has also previously approved the listing and trading by 
the Exchange of several ETFs based on a variety of international and 
global market indexes.\28\ In approving these securities for Exchange 
trading, the Commission considered applicable Amex rules that govern 
their trading. The Commission believes that generic listing standards 
for these securities should fulfill the intended objective of Rule 19b-
4(e) under the Act \29\ and allow those ETFs that satisfy the generic 
listing standards to commence trading without the need for public 
comment and Commission approval.\30\
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    \26\ 17 CFR 240.19b-4(e).
    \27\ See Commentary .03 to Amex Rule 1000 and Commentary .02 to 
Amex Rule 1000A. See also Securities Exchange Act Release No. 42787 
(May 15, 2000), 65 FR 33598 (May 24, 2000).
    \28\ See, e.g., Securities Exchange Act Release Nos. 50189 
(August 12, 2004), 69 FR 51723 (August 20, 2004) (approving the 
listing and trading of certain Vanguard International Equity Index 
Funds); 44700 (August 14, 2001), 66 FR 43927 (August 21, 2001) 
(approving the listing and trading of series of the iShares Trust 
based on certain S&P global indexes). Likewise, the Commission has 
approved listing standards that permit the listing and trading of 
index-based derivative securities where the same index had been 
considered in connection with the Commission's approval of another 
derivative security. See, e.g., Amex Company Guide Section 107D 
(Index-Linked Securities), Securities Exchange Act Release No. 51563 
(April 15, 2005), 70 FR 21257 (April 25, 2005).
    \29\ 17 CFR 240.19b-4(e).
    \30\ The Commission notes that the failure of a particular index 
to comply with the proposed generic listing standards under Rule 
19b-4(e), however, would not preclude the Exchange from submitting a 
separate filing pursuant to Section 19(b)(2), requesting Commission 
approval to list and trade a particular index-linked product.
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ETF Listing and Trading

    The Commission finds that the Amex proposal contains adequate rules 
and procedures to govern the listing of ETFs based on international or 
global indexes listed pursuant to Rule 19b-4(e) on the Exchange or 
trading pursuant to unlisted trading privileges (``UTP'').\31\
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    \31\ An exchange trading ETFs pursuant to UTP must comply with 
applicable trading rules and surveillance requirements for the 
derivative product. See Securities Exchange Act Release No. 35637 
(April 21, 1995), 60 FR 20891 (April 28, 1995).
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    As proposed, Commentary .03 to Amex Rule 1000 and Commentary .02 to 
Amex Rule 1000A establish standards

[[Page 66997]]

for the composition of an index or portfolio underlying an ETF. These 
requirements are designed, among other things, to require that 
components of an index or portfolio underlying an ETF are adequately 
capitalized and sufficiently liquid, and that no one stock dominates 
the index.
    Taken together, the Commission finds that these standards are 
reasonably designed to ensure that stocks with substantial market 
capitalization and trading volume account for a substantial portion of 
any underlying index or portfolio, and that when applied in conjunction 
with the other applicable listing requirements, will permit the listing 
only of ETFs that are sufficiently broad-based in scope to minimize 
potential manipulation. Similarly, the Commission finds that the 
proposed listing standards are designed to preclude ETFs from becoming 
surrogates for trading in unregistered securities. The Commission 
further believes that the requirement that each component security 
underlying an ETF be listed on an exchange and subject to last-sale 
reporting should contribute to the transparency of the market for ETFs.
    The proposed generic listing standards will, alternatively, permit 
listing of an ETF if the Commission has previously approved the 
underlying index for trading in connection with another derivative 
product and the underlying index or portfolio constituents are all 
either U.S. Component Stocks, which must be listed on a national 
securities exchange and be an NMS stock as defined in Rule 600(b)(47) 
of Regulation NMS under the Act,\32\ or Non-US Component Stocks listed 
on an exchange that has last-sale reporting.\33\ The Commission 
believes that if it has previously determined that such index and its 
components were sufficiently transparent, then the Exchange may rely on 
this finding, provided that the Exchange complies with the rules and 
conditions set forth by the Commission in its prior approval order, 
including surveillance sharing arrangements with the foreign market, if 
any.\34\
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    \32\ 17 CFR 242.600(b)(47).
    \33\ See proposed Commentary .03(a)(C) to Amex Rule 1000 and 
Commentary .02(a)(C) to Amex Rule 1000A.
    \34\ The Commission notes that it has taken this position 
connection with listing standards for ILSs. See supra note 28.
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    Regardless of whether the ETF is listed and/or traded pursuant to 
these generic listing standards, the Exchange's proposal also requires 
the value of an index or portfolio underlying an ETF based on a global 
or international index to be disseminated at least once every 60 
seconds.\35\ In addition, an Intraday Indicative Value, which 
represents an estimate of the value of a share of each ETF, must be 
updated and disseminated at least once every 15 seconds during the time 
an ETF trades on the Exchange.\36\ The Commission believes that by 
requiring pricing information for both the relevant underlying index 
\37\ and the ETF to be readily available and disseminated, the proposal 
is designed to ensure a fair and orderly market for ETFs listed and 
traded pursuant to Amex Rules 1000 and 1000A.
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    \35\ See proposed Commentary .03(b)(iii) to Amex Rule 1000 and 
Commentary .02(b)(iii) to Amex Rule 1000A. To the extent an index or 
portfolio value does not change during some of the time that a 
foreign ETF trades on the Exchange, the last official calculated 
value must remain available throughout Exchange trading hours.
    \36\ See Commentary .03(c) to Amex Rule 1000 and Commentary 
.02(c) to Amex Rule 1000A. The Intraday Indicative Value will be 
updated to reflect changes in the exchange rate between the U.S. 
dollar and the currency in which any index or portfolio component 
stock is denominated.
    \37\ The requirement contemplates that one composite index value 
would be disseminated in accordance with this rule for any ETF based 
on several indexes.
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    The Exchange proposes continued listing standards for all ETFs, 
whether listed pursuant to generic listing standards or by Commission 
approval of the specific product. In the event that an underlying index 
or portfolio value is no longer calculated on at least a 15 second 
basis or is substituted with an index that does not meet the applicable 
requirements, the Exchange will commence delisting proceedings. The 
Commission believes that this is an important safeguard to help assure 
that ETFs listed and traded on the Exchange meet applicable listing 
standards on an ongoing basis and do not, for example, trade without 
key pricing information available.
    The Commission notes that each ETF will be required to represent 
that it will calculate and make available daily the NAV to all market 
participants at the same time. Furthermore, proposed Amex Rules 
1002(b)(ii) and 1000A(b)(ii) require that, if the Intraday Indicative 
Value 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. 
Similarly, if the Exchange deems further dealings in the product 
inadvisable, trading will be halted. The Commission believes that the 
delisting criteria, NAV dissemination requirements, and trading halt 
rules will help ensure an appropriate level of transparency exists with 
respect to each foreign ETF to allow for the maintenance of fair and 
orderly markets.

Surveillance

    The Commission notes that any foreign ETFs approved for listing and 
trading would be subject to Amex's existing surveillance program for 
ETFs, which the Exchange has represented are adequate to properly 
monitor the trading of ETFs listed pursuant to these proposed generic 
listing standards.

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 in the Federal Register. The Exchange has 
requested accelerated approval of the proposal to facilitate the prompt 
listing and trading of ETFs based on global or international indexes or 
portfolios meeting the specified criteria and ETFs based on indexes or 
portfolios underlying derivative securities that were previously 
approved by the Commission. The Commission notes that the Exchange's 
listing standards are based, in part, on previously approved ETF 
listing standards relating to indexes or portfolios made up of U.S. 
Component Stocks or on Commission orders approving the listing and 
trading of ETFs based on global or international indexes. The 
Commission believes that accelerated approval of the proposal should 
expedite the listing and trading of additional ETFs, subject to 
consistent and reasonable standards, to the benefit of the investing 
public. Therefore, the Commission finds good cause, consistent with 
Section 19(b)(2) of the Act,\38\ to approve the proposed rule change on 
an accelerated basis.
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    \38\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 2 
is consistent with the Act. Comments may be submitted by any of the 
following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-Amex-2006-78 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary,

[[Page 66998]]

Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-1090.
    All submissions should refer to File Number SR-Amex-2006-78. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, 

all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the Amex. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-Amex-2006-78 and should be submitted on or before 
December 8, 2006.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\39\ that the proposed rule change (SR-Amex-2006-78), as modified 
by Amendments No. 1 and 2, is hereby approved on an accelerated basis.
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    \39\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12).

Nancy M. Morris,
Secretary.
 [FR Doc. E6-19415 Filed 11-16-06; 8:45 am]

BILLING CODE 8011-01-P
