
[Federal Register: March 14, 2008 (Volume 73, Number 51)]
[Notices]               
[Page 13942-13943]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14mr08-108]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57460; File No. SR-NYSEArca-2008-12]

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

March 10, 2008.

I. Introduction

    On January 17, 2008, NYSE Arca, Inc. (``NYSE Arca'' 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 
proposed rule change relating to pricing information for components 
underlying Currency-Linked Securities.\3\ The proposed rule change was 
published for comment in the Federal Register on February 5, 2008.\4\ 
The Commission received no comments on the proposal. This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \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).
    \4\ See Securities Exchange Act Release No. 57227 (January 29, 
2008), 73 FR 6759 (``Notice'').
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II. Description of the Proposal

    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 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 (collectively, the 
``High Volume Global Currencies'').\5\
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    \5\ 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). Additional information 
regarding the over-the-counter (``OTC'') foreign exchange market, 
global geographic foreign exchange trading centers, calculation of 
the generally accepted forward price, and regulation and oversight 
of the foreign exchange markets, among other, can be found in the 
Notice. See id.
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    In addition, the forward price will be used for pricing purposes 
only to the extent that the Currency Reference Asset

[[Page 13943]]

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. This 
exception is intended to 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.

III. Discussion and Commission's Findings

    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.\6\ In particular, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act,\7\ which requires, among other things, that the Exchange's rules 
be 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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    \6\ 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).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that opportunities to invest in derivative 
securities products based not only on the spot value, but also on the 
forward price, of a foreign currency provide additional choices to 
accommodate particular investment needs and objectives, should benefit 
investors. The Commission notes that the foreign exchange market as a 
whole, which is predominantly OTC, is a highly liquid market.\8\ The 
Commission also notes that outright forward transactions account for a 
material percentage of reported daily volume on the foreign exchange 
markets.\9\
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    \8\ The Exchange states that, in 2007, the average daily spot 
turnover accounted for over US$1 trillion, and the average daily 
forward turnover accounted for US$362 billion. See supra notes 4 and 
5.
    \9\ See id.
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    In the interest of assuring sufficient liquidity of the underlying 
components and thereby protecting investors of Currency-Linked 
Securities that are based on the generally accepted forward price for 
the currency exchange rate in question, the use of forward pricing 
information for any such component of a Currency Reference Asset would 
be limited to the High Volume Global Currencies. The Commission notes 
that Currency-Linked Securities that satisfy the applicable 
requirements under NYSE Arca Equities Rule 5.2(j)(6) would be able to 
be listed and traded pursuant to Rule 19b-4(e) under the Act.\10\ The 
Commission believes that, to list and trade Currency-Linked Security 
products based on forward prices of foreign currencies pursuant to Rule 
19b-4(e) under the Act, limiting such foreign currencies to the High 
Volume Global Currencies is an appropriate measure to assure sufficient 
liquidity in the underlying components.\11\ In addition, the forward 
price should be used for pricing purposes only to the extent that the 
Currency Reference Asset is based on the forward price.\12\ The 
Commission believes that the proposed rule change, which seeks to 
expand the types of components on which Currency-Linked Securities are 
based, should promote the listing and trading of additional Currency-
Linked Securities and thereby support greater options and competition 
in such products, to the benefit of investors and the public interest.
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    \10\ See 17 CFR 240.19b-4(e)(1). Rule 19b-4(e)(1) under the Act 
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 under the Act (17 CFR 240.19b-4(c)(1)), if the Commission has 
approved, pursuant to Section 19(b) of the Act (15 U.S.C. 78s(b)), 
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\ The Commission further notes that, if the Exchange seeks to 
list and trade a Currency-Linked Security product based on forward 
prides of non-High Volume Global Currencies, it can does so by 
filing a proposed rule change pursuant to Sections 19(b)(1) of the 
Act.
    \12\ The proposal also states that, with respect to a Currency-
Linked Security that is based on the forward price of a foreign 
currency, if the forward price is not available due to a holiday, 
the spot price may be used for calculating the pricing information 
on the Currency Reference Asset. The pricing information on the 
following business day must be based on the forward price. See 
proposed Commentary .01 to NYSE Arca Equities Rule 
5.2(j)(6)(B)(III).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-NYSEArca-2008-12) be, and it 
hereby is, approved.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-5099 Filed 3-13-08; 8:45 am]

BILLING CODE 8011-01-P
