

[Federal Register: February 5, 2008 (Volume 73, Number 24)]
[Notices]               
[Page 6759-6762]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05fe08-99]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57227; File No. SR-NYSEArca-2008-12]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Pricing Information for Components 
Underlying Currency-Linked Securities

January 29, 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 January 17, 2008, 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'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Equities Rule 
5.2(j)(6)(B)(III)(1), which sets forth the Exchange's initial listing 
criteria for Currency-Linked Securities,\3\ to permit the listing and 
trading of Currency-Linked Securities where the pricing information for 
one or more currencies comprising the Currency Reference Asset is the 
generally accepted forward price for the currency exchange rate in 
question. The text of the proposed rule change is available at the 
Exchange, the Commission's Public Reference Room, and http://www.nyse.com
.

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    \3\ Currency-Linked Securities are securities that provide for 
payment at maturity of a cash amount based on the performance of one 
or more currencies, or options or currency futures or other currency 
derivatives or Currency Trust Shares (as defined in NYSE Arca 
Equities Rule 8.202), or a basket or index of any of the foregoing 
(``Currency Reference Asset''). See NYSE Arca Equities Rule 
5.2(j)(6).
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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 Exchange 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 IV 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend NYSE Arca Equities Rule 
5.2(j)(6)(B)(III)(1) to permit the listing of Currency-Linked 
Securities where the pricing information for some or all of the 
components of the Currency Reference Asset is the generally accepted 
forward price for the currency exchange rate in question. The ability 
for an issuer to use forward pricing information under proposed NYSE 
Arca Equities Rule 5.2(j)(6)(B)(III)(1)(b) for any component of a 
Currency Reference

[[Page 6760]]

Asset would be restricted to the following currencies, based on high 
volumes of forward contract transactions in such currencies: U.S. 
Dollar, Euro, Japanese Yen, British Pound Sterling, Swiss Franc, 
Canadian Dollar, Australian Dollar, Brazilian Real, Chinese Renminbi, 
Czech Koruna, Danish Krone, Hong Kong Dollar, Hungarian Forint, Indian 
Rupee, Indonesian Rupiah, Korean Won, Mexican Peso, Norwegian Krone, 
New Zealand Dollar, Philippine Peso, Polish Zloty, Russian Ruble, 
Swedish Krona, South African Rand, Singapore Dollar, Taiwan Dollar, 
Thai Baht or New Turkish Lira. The volume in these currencies is as 
follows: \4\
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    \4\ See Bank for International Settlements (``BIS''), Triennial 
Central Bank Survey of Foreign Exchange and Derivatives Market 
Activity in April 2007, Statistical Annex Tables--Foreign Exchange 
Markets (2007) (``2007 BIS Report''); BIS, Triennial Central Bank 
Survey of Foreign Exchange and Derivatives Market Activity in April 
2004, Statistical Annex Tables--Foreign Exchange Markets (2004); and 
BIS, Triennial Central Bank Survey of Foreign Exchange and 
Derivatives Market Activity in April 2001, Statistical Annex 
Tables--Foreign Exchange Markets (2001).

                                 FX Forward Average Daily Volume in Millions USD
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                          Currency                                2001         2004         2007       Average
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U.S. Dollar.................................................      110,795      170,357      289,435      190,196
Euro........................................................       54,327       88,243      137,391       93,320
Japanese Yen................................................       33,257       47,135       61,453       47,282
British Pound Sterling......................................       16,826       31,338       46,274       31,479
Swiss Franc.................................................        6,637       11,307       21,186       13,043
Canadian Dollar.............................................        4,335        8,947       15,280        9,521
Australian Dollar...........................................        5,416        9,788       20,463       11,889
Brazilian Real..............................................        1,259        1,072        5,259        2,530
Chinese Renminbi............................................           55          811        4,572        1,813
Czech Koruna................................................           96          253        1,432          594
Danish Krone................................................          888        1,347        2,841        1,692
Hong Kong Dollar............................................        3,055        2,221        6,022        3,766
Hungarian Forint............................................           28          308        1,357          564
Indian Rupee................................................          428        1,531        5,815        2,591
Indonesian Rupiah...........................................          103          267        1,292          554
Korean Won..................................................        1,671        6,048       10,013        5,911
Mexican Peso................................................          673        1,716        4,594        2,328
Norwegian Krone.............................................        1,187        2,543        6,498        3,409
New Zealand Dollar..........................................          579        1,462        6,639        2,893
Philippine Peso.............................................           73          232        1,123          476
Polish Zloty................................................          439          483        2,644        1,189
Russian Ruble...............................................           52          253        1,253          519
Swedish Krona...............................................        3,207        4,158        8,543        5,303
South African Rand..........................................          825        1,122        3,458        1,802
Singapore Dollar............................................          825        1,242        2,962        1,676
Taiwan Dollar...............................................          603        2,798        4,724        2,708
Thai Baht...................................................          231          490          847          523
New Turkish Lira............................................          164          239          535          313
                                                             ---------------------------------------------------
    Total (divided by 2)....................................      125,018      199,858      337,956      220,944
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    The Exchange states that the total amount of contracts reflected in 
the chart above is divided by two because each contract is denominated 
in two currencies. For example, one contract will reflect cross rates 
in two currencies: U.S. Dollar against Euro, Singapore Dollar against 
New Turkish Lira, etc. The daily notional turnover for the currency 
forward contracts reflected in the chart above ranged from US$535 
million to US$289 billion in April 2007.
    In addition, the forward price will be used for pricing purposes 
only to the extent that the Currency Reference Asset is based on the 
forward price. In the event a Currency Reference Asset is based on the 
forward price, and the forward price becomes unavailable due to a 
holiday, the spot price may be used for calculating the price of the 
component(s) comprising the Currency Reference Asset. The pricing 
information of such Currency Reference Asset on the following business 
day must be the forward price. The Exchange states that this exception 
will permit certain hedged products that use forward pricing 
information to use the spot price, which is quoted in the United 
States, when the forward price, which is derived from the spot price, 
is unavailable due to a foreign holiday.

[[Page 6761]]

    The Exchange states that the foreign exchange market is 
predominantly an over-the-counter (``OTC'') market with no fixed 
location, and it operates 24 hours a day, five days a week. London, New 
York, and Tokyo are the principal geographic centers of the worldwide 
foreign exchange market, with approximately 58% of all foreign exchange 
business executed in the United Kingdom, United States, and Japan. 
Other smaller markets include Singapore, Zurich, and Frankfurt.\5\ 
There are three major types of transactions in the traditional foreign 
exchange markets: spot transactions, outright forwards, and foreign 
exchange swaps. ``Forward'' trades are transactions involving the 
exchange of two currencies at a rate agreed on the date of the contract 
for value on delivery (cash settlement) at some time in the future. 
These trades account for 12% of the reported daily volume. Forward 
rates are quoted among dealers in premiums or discounts from the spot 
rate.\6\ The premium or discount is measured in ``points'' that 
represent the interest rate differential between two currencies for the 
period of the forward, converted into foreign exchange.\7\ The 
generally accepted forward price is calculated as follows: \8\
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    \5\ See generally Securities Exchange Act Release No. 55268 
(February 9, 2007), 72 FR 7793 (February 20, 2007) (SR-NYSE-2007-03) 
(providing background and information relating to the foreign 
exchange markets).
    \6\ See Sam Y. Cross, Federal Reserve Bank of New York, All 
About . . . the Foreign Exchange Market in the United States, at 38 
(1998) (available at http://www.newyorkfed.org/education/addpub/usfxm
).

    \7\ See id.
    \8\ See id.
    [GRAPHIC] [TIFF OMITTED] TN05FE08.002
    
The Exchange states that the OTC foreign currency market is a very 
liquid market. In 2007, the average daily spot turnover accounted for 
over US$1 trillion, and the average daily forward turnover accounted 
for US$362 billion.\9\ In addition to liquidity, the Exchange states 
that the forward market is extremely transparent. Bloomberg, Reuters, 
and other major market information providers disseminate quotes for the 
forward market provided by OTC market makers.
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    \9\ See 2007 BIS Report (Table 1), supra note 4.
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    The Exchange notes that most trading in the global OTC foreign 
currency markets is conducted by regulated financial institutions such 
as banks and broker-dealers. In addition, in the United States, the 
Foreign Exchange Committee of the New York Federal Reserve Bank has 
issued Guidelines for Foreign Exchange Trading, and central-bank 
sponsored committees in Japan and Singapore have published similar best 
practices guidelines. In the United Kingdom, the Bank of England has 
published the Non-Investment Products Code, which covers foreign 
currency trading. The Financial Markets Association, the members of 
which include major international banking organizations, has also 
established best practices guidelines called the Model Code.\10\ 
Participants in the U.S. OTC market for foreign currencies are 
generally regulated by their oversight regulators. For example, 
participating banks are regulated by the banking authorities.
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    \10\ See supra note 5.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\11\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\12\ in particular, in that it 
is designed to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
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.
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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 Exchange does not believe that the proposed rule change will 
impose any 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 states that it has neither solicited nor received 
written comments on the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. 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 rule-comments@sec.gov. Please include 

File Number SR-NYSEArca-2008-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2008-12. 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

[[Page 6762]]

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-NYSEArca-2008-12 and should be submitted on or before 
February 26, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-1969 Filed 2-4-08; 8:45 am]

BILLING CODE 8011-01-P
