

[Federal Register: October 12, 2007 (Volume 72, Number 197)]
[Notices]               
[Page 58145-58146]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12oc07-110]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56627; File No. SR-NYSEArca-2007-75]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, To Expand the Trading Hours of Certain Exchange-Traded Funds

I. Introduction

Dated: October 5, 2007.
    On July 30, 2007, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange''), 
through its wholly owned subsidiary NYSE Arca Equities, Inc. (``NYSE 
Arca Equities''), 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 expand the trading hours of certain exchange-traded funds 
(``ETFs''). On August 22, 2007, the Exchange filed Amendment No. 1 to 
the proposed rule change. The proposed rule change, as amended, was 
published for comment in the Federal Register on August 31, 2007.\3\ 
The Commission received no comments on the proposal. This order 
approves the proposed rule change, as modified by Amendment No. 1 
thereto.
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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. 56329 (August 28, 
2007), 72 FR 50431 (``Notice'').
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II. Description of the Proposal

    NYSE Arca proposes to expand the trading hours of certain ETFs to 
include all three Exchange trading sessions.\4\ NYSE Arca Equities Rule 
7.34 provides for three trading sessions on the NYSE Arca Marketplace 
each day that NYSE Arca Equities is open for business: (1) An Opening 
Session (4 a.m. to 9:30 a.m. eastern time or ``ET''); (2) a Core 
Trading Session (9:30 a.m. to 4 p.m. ET); \5\ and (3) a Late Trading 
Session (4 p.m. to 8 p.m. ET). The Commission previously approved 
Exchange proposals to list and trade, or trade pursuant to UTP, the 
Covered ETFs in one or two, but not all three trading sessions.
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    \4\ The Notice provides a detailed list of the specific ETFs 
subject to the proposed rule change (``Covered ETFs'') and citations 
to the corresponding approval orders for listing and trading, or 
trading pursuant to unlisted trading privileges (``UTP''), of the 
Covered ETFs. See id., 72 FR at 50431-50433.
    \5\ The Core Trading Session for securities described in NYSE 
Arca Equities Rules 5.2(j)(3), 8.100, 8.200, 8.201, 8.202, 8.203, 
8.300, and 8.400 currently concludes at 4:15 p.m. ET. NYSE Arca 
Equities Rules 5.2(j)(3), 8.100, 8.200, 8.201, 8.202, 8.203, 8.300, 
and 8.400 relate to Investment Company Units, Portfolio Depositary 
Receipts, Trust Issued Receipts, Commodity-Based Trust Shares, 
Currency Trust Shares, Commodity Index Trust Shares, Partnership 
Units, and Paired Trust Shares, respectively. See Securities 
Exchange Act Release No. 54997 (December 21, 2006), 71 FR 78501 
(December 29, 2006) (SR-NYSEArca-2006-77) (establishing hours of 
trading for securities of certain ETFs).
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    The Exchange makes the following representations with respect to 
the trading of Covered ETFs during all three Exchange trading sessions:
    1. The Exchange has appropriate rules to facilitate transactions in 
the shares of ETFs during all trading sessions. The Exchange deems such 
shares to be equity securities, thus rendering trading in such shares 
subject to the Exchange's existing rules governing the trading of 
equity securities.
    2. The Exchange's surveillance procedures are adequate to properly 
monitor the trading of shares of the ETFs in all trading sessions.\6\
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    \6\ The Exchange states that it may obtain information via the 
Intermarket Surveillance Group (``ISG'') from other exchanges who 
are members or affiliate members of ISG. In addition, as referenced 
in the applicable approval orders, the Exchange has in place 
information sharing agreements with the relevant exchange(s).
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    3. The Exchange has distributed an Information Bulletin to Equity 
Trading Permit (``ETP'') Holders prior to the commencement of trading 
of the shares of the ETFs that explains the terms, characteristics, and 
risks of trading such shares. In addition, the Exchange states that it 
will distribute an Information Bulletin that explains the terms, 
characteristics, and risks of trading the shares of the ETFs that have 
not yet been launched to ETP Holders prior to the commencement of 
trading of such shares.
    4. The Exchange will require ETP Holders with a customer who 
purchases newly issued shares of the ETFs in any trading session on the 
NYSE Arca Marketplace to provide that customer with a product 
description, if available, or a prospectus, and has noted this delivery 
requirement in the Information Bulletin.
    5. When the Exchange is the UTP trading market, the Exchange will 
cease trading in the shares of the ETFs during all trading sessions if 
(a) the listing market stops trading the shares, or (b) the listing 
market delists the shares. Additionally, the Exchange may cease trading 
the shares if such other event shall occur or condition exists which, 
in the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable. UTP trading in the shares of the ETFs is also governed by 
the trading halt provisions of NYSE Arca Equities Rule 7.34 relating to 
temporary interruptions in the calculation or wide dissemination of the 
intraday indicative value (``IIV'') \7\ or the value of the underlying 
index or other applicable underlying benchmark. Shares of the ETFs will 
be traded following a trading halt in accordance with NYSE Arca 
Equities Rule 7.35(f).
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    \7\ The IIV is also sometimes referred to as the Indicative 
Optimized Portfolio Value (``IOPV''), the Indicative Fund Value 
(``IFV''), the Indicative Trust Value (``ITV''), and the Indicative 
Partnership Value (``IPV''), depending upon the type of ETF being 
traded.
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    6. When the Exchange is the listing market, the Exchange may 
consider all relevant factors in exercising its discretion to halt or 
suspend trading in the shares of an ETF. Trading may be halted because 
of market conditions or for reasons that, in the view of the Exchange, 
make trading in the shares inadvisable. Factors for consideration may 
include (a) the extent to which trading is not occurring in the 
securities or other instruments underlying an ETF, or (b) whether other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair and orderly market are present. In addition, trading in the shares 
of listed ETFs are subject

[[Page 58146]]

to trading halts caused by extraordinary market volatility pursuant to 
the Exchange's ``circuit breaker'' rule (NYSE Arca Equities Rule 7.12) 
or by the halt or suspension of trading of the underlying securities or 
other instruments underlying an ETF. If the IIV or the index value (or 
value of the underlying asset or instrument, if not an index) 
applicable to a series of shares is not being disseminated as required, 
the Exchange may halt trading during the day in which the interruption 
to the dissemination of the IIV or the index value occurs. If the 
interruption to the dissemination of the IIV 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.
    7. The IIV and/or index value (or value of the underlying asset or 
instrument, if not an index) will continue to be disseminated during 
all three trading sessions, to the extent the relevant approval order 
provides for this dissemination requirement.
    The Exchange states that the representations in the corresponding 
approval orders for each of the Covered ETFs shall continue to apply 
with respect to trading during the Core and Late Trading Sessions.
    In a separate filing with the Commission, the Exchange recently 
amended NYSE Arca Equities Rule 7.34(e) to require ETP Holders to 
disclose additional risks associated with extended hours trading in new 
derivative securities products to customers.\8\ The Exchange has 
committed to distribute to its ETP Holders and make available on its 
Web site an Information Bulletin titled ``Exchange-Traded Funds--
Extended Trading Hours'' that discloses and discusses such risks, in 
addition to the following: (1) The underlying index value may not be 
updated during the Core and Late Trading Sessions; (2) the IIV may not 
be updated during the Core and Late Trading Sessions; (3) commodity and 
currency spot prices are available in the Core and Late Trading 
Sessions, but commodity and currency futures prices generally will not 
be available in the Core and Late Trading Sessions;\9\ (4) lower 
liquidity in the Core and Late Trading Sessions may impact pricing; (5) 
higher volatility in the Core and Late Trading Sessions may impact 
pricing; (6) wider spreads may occur in the Core and Late Trading 
Sessions; (7) other required customer disclosures; (8) the 
circumstances that trigger trading halts; and (9) suitability 
requirements.
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    \8\ See Securities Exchange Act Release No. 56270 (August 15, 
2007), 72 FR 47109 (August 22, 2007) (SR-NYSEArca-2007-74). 
Specifically, the Exchange requires ETP Holders to disclose to their 
customers who are not ETP Holders that an updated underlying index 
value or IIV may not be calculated or publicly disseminated during 
extended trading hours. Since the IIV is not calculated or widely 
disseminated during the Opening and Late Trading Sessions, an 
investor who is unable to calculate an implied value for a 
derivative securities product in those sessions may be at a 
disadvantage to market professionals. The Exchange believes that 
requiring ETP Holders to disclose this risk to non-ETP Holders will 
facilitate informed participation in extended hours trading.
    \9\ The Exchange states that, in certain cases, the futures or 
options markets for a particular commodity may be closed during part 
of the Core Trading Session, and the IIV would be static for that 
particular future or options price, but widely disseminated. In 
addition, the prices of certain futures contracts in commodities 
(e.g., gold) and currencies are available on a 24-hour basis.
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    The Exchange notes that, if the official index value does not 
change during some or all of the period when trading is occurring on 
the Exchange (for example, because of time zone differences or holidays 
in countries where the index component stocks trade), then the last 
calculated official index value must remain available throughout 
Exchange trading hours. Similarly, if the IIV does not change during 
any portion of Exchange trading hours, then the last official 
calculated IIV must remain available throughout Exchange trading hours.

III. Commission's Findings and Order Granting Approval of the Proposed 
Rule Change

    After careful review and based on the Exchange's representations, 
the Commission finds that the proposed rule change is consistent with 
the requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\10\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act.\11 \The Commission believes that the 
proposal reasonably balances the removal of impediments to a free and 
open market with the protection of investors and the public interest, 
two principles set forth in Section 6(b)(5) of the Act. Trading during 
extended hours carries more risks than during regular business hours. 
With ETFs in particular, customers who trade when an IIV is not 
calculated and publicly disseminated may be at a disadvantage to 
professional traders who have their own means of calculating a reliable 
estimate of the net asset value. The Exchange has represented that it 
will distribute to its ETP Holders an information bulletin that 
discusses this particular risk and other risks of trading the Covered 
ETFs outside of normal business hours. In view of these additional 
disclosures, the Commission believes it is reasonable and consistent 
with the Act for the Exchange to extend the trading hours of the 
Covered ETFs in the manner described in this proposal.
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    \10\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-NYSEArca-2007-75), as 
modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E7-20122 Filed 10-11-07; 8:45 am]

BILLING CODE 8011-01-P
