[Federal Register Volume 67, Number 92 (Monday, May 13, 2002)]
[Notices]
[Pages 32073-32075]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-11888]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45884; File No. SR-NYSE-2002-17]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the New York Stock Exchange, 
Inc. to Extend Pilot Relating to Its Allocation Policy for Trading of 
Exchange-Traded Funds Traded on an Unlisted Trading Privileges Basis

May 6, 2002.
    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 May 6, 2002, the New York Stock Exchange, Inc. (``Exchange'' or 
``NYSE'') filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the NYSE. The proposed 
rule change has been filed by the NYSE as a ``non-controversial'' rule 
change under Rule 19b-4(f)(6) of the Act.\3\ 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The proposed rule change seeks to extend the pilot relating to the 
Exchange's policy for allocating Exchange-Traded Funds (``ETFs'') 
admitted to trading on the Exchange on an Unlisted Trading Privileges 
Basis (``UTP'') for an additional year. The pilot is set to expire on 
May 7, 2002. For purposes of the Allocation Policy, ETFs include both 
Investment Company Units (as defined in paragraph 703.16 of the NYSE 
Listed Company Manual) and Trust Issued Receipts (as defined in NYSE 
Rule 1200), which trade UTP.
    Since the inception of the Allocation Policy, 30 different ETFs 
have been successfully allocated. This includes 17 Merrill Lynch 
Holding Company Depositary Receipts (HOLDRs), a type of Trust Issued 
Receipt, 9 different types of Select Sector SPDRs, 1 MidCap SPDR, the 
Nasdaq-100 Index Tracking Stock (symbol QQQ), the Standard & Poor's 
Depositary Receipts (symbol SPY), and The Dow Industrials DIAMONDS 
(symbol DIA).

[[Page 32074]]

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 NYSE 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 NYSE 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 Allocation Policy was originally filed as a one-year pilot, 
which was approved by the Commission on May 7, 2001.\4\ Certain aspects 
of the pilot program were subsequently amended.\5\ The pilot program is 
due to expire on May 7, 2002. Therefore, the NYSE is seeking to extend 
the pilot relating to the Allocation Policy for an additional year.
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    \4\ See Securities Exchange Act Release No. 44272 (May 7, 2001), 
66 FR 26898 (May 15, 2001) (SR-NYSE-2001-07).
    \5\ See Securities Exchange Act Release Nos. 44306 (May 15, 
2001), 66 FR 28008 (May 21, 2001) (SR-NYSE-2001-10); and 45729 
(April 10, 2002), 67 FR 18970 (April 17, 2002) (SR-NYSE-2002-07).
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    Under the Allocation Policy, the ETFs traded on a UTP basis are 
allocated by a special committee, consisting of the Chairman of the 
Allocation Committee, the three most senior Floor broker members of the 
Allocation Committee, and four members of the Exchange's senior 
management as designated by the Chairman of the Exchange. This permits 
Exchange management, acting with key members of the Allocation 
Committee, to oversee directly the introduction of the UTP concept to 
the NYSE. For purposes of the Allocation Policy, ETFs collectively 
include Investment Company Units (as defined in paragraph 703.16 of the 
NYSE Listed Company Manual) and Trust Issued Receipts (as defined in 
NYSE Exchange Rule 1200).
    Under the Allocation Policy, allocation applications are solicited 
by the Exchange, and the special committee reviews the same performance 
and disciplinary material reviewed by the Allocation Committee for 
allocating listed stocks on the Exchange.\6\ In addition, specialist 
unit applicants are required to demonstrate:
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    \6\ See Section IV of the Allocation Policy and Procedures 
approved in Securities Exchange Act No. 42746 (May 2, 2000), 65 FR 
30171 (May 10, 2000) (SR-NYSE-99-34) for details of the performance 
and disciplinary material available to the Allocation Committee.
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    (a) An understanding of the trading characteristics of ETFs;
    (b) Expertise in the trading of derivatively-priced instruments;
    (c ) Ability and willingness to engage in hedging activity as 
appropriate;
    (d) Knowledge of other markets in which the ETF to be allocated 
trades;
    (e) Willingness to provide financial and other support to relevant 
Exchange publicity and educational initiatives.
    The special committee reviews specialist unit applications and 
reaches its allocation decision by majority vote. Any tie vote is 
decided by the Chairman of the Exchange. The Exchange has determined 
that, due to the unique aspects of certain ETF products, it may be 
helpful for the special committee to meet with and interview specialist 
units before making an allocation decision.
    A specialist organization cannot be both the specialist in the ETF 
and the specialist in any security that is a component of the ETF. This 
restriction is necessary to avoid the possibility of ``wash sales'' in 
a situation where the specialist in the ETF needs to hedge by buying or 
selling component stocks of the ETF, and could inadvertently be trading 
with a proprietary bid or offer made by a specialist in the same member 
organization who is making a market in the component security.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \7\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \8\ in particular, because it is designed to 
promote just and equitable principles of trade, 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 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 inappropriate burden on competition that is not necessary 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

    No written comments were either solicited or received.

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

    If the foregoing proposed rule change: (1) Does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) does not become 
operative for 30 days from the date of filing, or such shorter time as 
the Commission may designate if consistent with the protection of 
investors and the public interest, the proposed rule change may become 
effective pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19b-
4(f)(6) thereunder.\10\ The Exchange has requested that the Commission 
waive the five-day pre-filing requirement and designate that the 
proposed rule change become operative immediately to permit the 
Exchange to continue the pilot program on an uninterrupted basis.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    The Commission believes that it is consistent with the protection 
of investors and the public interest to waive the five-day pre-filing 
requirement and designate the proposal immediately operative.\11\ 
Accelerating the operative date and waiving the pre-filing requirement 
will permit the Exchange to continue the pilot program without undue 
delay. In addition, the Commission did not receive any comments on the 
original pilot program. Thus, the pilot program is extended through May 
8, 2003. At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.
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    \11\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule

[[Page 32075]]

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 will also be available for 
inspection and copying at the principal office of the NYSE. All 
submissions should refer to File No. SR-NYSE-2002-17 and should be 
submitted by June 3, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-11888 Filed 5-10-02; 8:45 am]
BILLING CODE 8010-01-P