

[Federal Register: April 3, 2007 (Volume 72, Number 63)]
[Notices]               
[Page 15923-15924]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03ap07-97]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55544; File No. SR-Amex-2007-07]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Approving a Proposed Rule Change Revising Existing Rules for Portfolio 
Depositary Receipts and Index Fund Shares

March 27, 2007.

I. Introduction

    On January 11, 2007, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposal to revise its existing rules for portfolio depositary receipts 
(Amex Rule 1000-AEMI) and index fund shares (Amex Rule 1000A-AEMI) to 
eliminate the methodology standards for eligible indexes. On January 
25, 2007, the Amex submitted Amendment No. 1 to the proposed rule 
change. The proposed rule change, as modified by Amendment No. 1, was 
published for comment in the Federal Register on February 12, 2007 for 
a 15-day comment period.\3\ The Commission received no comments 
regarding the proposal. On March 14, 2007, Amex filed Amendment No. 2 
to the proposed rule change.\4\ This order approves the proposed rule 
change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 55240 (February 5, 
2007), 72 FR 6624.
    \4\ Amendment No. 2 is a technical amendment, which revises the 
proposal to reflect the implementation of Amex's Auction and 
Electronic Market Integration (``AEMI'') platform and corresponding 
adoption of Rules 1000-AEMI and 1000A-AEMI, which replace former 
Amex rules 1000 and 1000A. As such, it is not subject to notice and 
comment.
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II. Description of the Proposal

    The purpose of this proposed rule change is to amend Amex's 
existing generic listing standards pursuant to Rule 19b-4(e) under the 
Act \5\ for portfolio depositary receipts (``PDRs'') and index fund 
shares \6\ to eliminate the requirement that an eligible index be 
calculated and weighted following a specified methodology.
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    \5\ 17 CFR 240.19b-4(e).
    \6\ PDRs and index fund shares are registered investment 
companies under the Investment Company Act of 1940 and are referred 
to in this filing as exchange traded funds (``ETFs'').
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    The Exchange currently has generic listing standards (within the 
meaning of Rule 19b-4(e) under the Act \7\), which permit the listing 
and trading of various qualifying ETFs subject to the procedures 
contained in Rule 19b-4(e). The existence of generic listing standards 
allows qualifying ETFs to list or trade without the need to file a rule 
change for each security. The generic listing standards for ETFs 
presently provide that eligible indexes be calculated based on the 
market capitalization, modified market capitalization, price, equal-
dollar, or modified equal-dollar weighting methodology.\8\ The proposed 
rule change would eliminate this standard, and, as a result, the 
Exchange would no longer consider index methodology in its review of an 
ETF's eligibility for listing and trading pursuant to Rule 19b-4(e) 
under the Act.\9\
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    \7\ 17 CFR 240.19b-4(e).
    \8\ See Commentary .03(b)(i) to Amex Rule 1000-AEMI and 
Commentary .02(b)(i) to Amex Rule 1000A-AEMI.
    \9\ 17 CFR 240.19b-4(e).
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III. Discussion

    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 \10\ and, in particular, the requirements of Section 6 of the 
Act.\11\ Specifically, the Commission finds that the proposed rule 
change is consistent with Section 6(b)(5) of the Act,\12\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
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    \10\ 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).
    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(5).
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    As the market for ETFs has grown, the variety of weighting and 
calculation methodologies for underlying indexes has also expanded, 
limiting the applicability of Amex's current generic ETF listing 
standards. The Commission believes that the proposed elimination of 
index methodology from its generic

[[Page 15924]]

listing standards for ETFs would potentially reduce the time frame for 
bringing ETFs based on indexes with nontraditional weighting techniques 
to the market, thereby reducing the burdens on issuers and other market 
participants and promoting competition, without compromising investor 
protection.
    The Commission notes that the generic listing standards for 
domestic indexes will continue to require, without limitation, that the 
most heavily weighted component stock of an index not exceed 30% of the 
weight of the index, and the five most heavily weighted component 
stocks of an index not exceed 65% of the weight of the index,\13\ and 
that an index include a minimum of 13 component stocks.\14\ Similarly, 
the generic listing standards for international or global indexes 
require, without limitation, that the most heavily weighted component 
stock of an index not exceed 25% of the weight of the index, and the 
five most heavily weighted component stocks of an index not exceed 60% 
of the weight of the index,\15\ and that an index include a minimum of 
20 component stocks.\16\ Therefore, the Commission believes that 
indexes underlying ETFs will continue to be sufficiently broad-based in 
scope to minimize potential manipulation.
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    \13\ See Commentary .03(a)(A)(3) to Amex Rule 1000-AEMI and 
Commentary .02(a)(A)(3) to Amex Rule 1000A-AEMI.
    \14\ See Commentary .03(a)(A)(4) to Amex Rule 1000-AEMI and 
Commentary .02(a)(A)(4) to Amex Rule 1000A-AEMI.
    \15\ See Commentary .03(a)(B)(3) to Amex Rule 1000-AEMI and 
Commentary .02(a)(B)(3) to Amex Rule 1000A-AEMI.
    \16\ See Commentary .03(a)(B)(4) to Amex Rule 1000-AEMI and 
Commentary .02(a)(B)(4) to Amex Rule 1000A-AEMI.
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    The Commission believes that the proposed rule change will enable 
the Exchange and issuers to benefit from the expected efficiencies 
resultant from this proposed rule change while at the same time still 
ensuring adequate protection for investors and the public in general.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-Amex-2007-07), as amended, 
be, and is hereby approved.
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    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-6083 Filed 4-2-07; 8:45 am]

BILLING CODE 8010-01-P
