NYSE Alert! Notice of Filing of Amendment No. 1, and Order Granting Accelerated Approval of a Proposed Rule Change: to permit the listing and trading of certain exchange-traded products (“ETPs”) that overlie one or more stocks listed on the Exchange.
Notice of Filing of Amendment No. 1, and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, to Amend Rules 5P, 5.2(j)(8)(e), 8P, and 98Comments due: 21 days after publication in the Federal Register
Rule 1.1(l) defines “Exchange Traded Product” as a security that meets the definition of “derivative securities product” in Rule 19b-4(e) under the Securities and Exchange Act of 1934 (the “Act”). ETPs include, for example, securities listed and traded on the Exchange pursuant to the following Exchange rules: Rule 5.2(j)(3) (Investment Company Units); Rule 5.2(j)(5) (Equity Gold Shares); Rule 5.2 (j)(6)(Equity IndexLinked Securities); Rule 8.100 (Portfolio Depositary Receipts); Rule 8.200 Receipts) (“TIR”)); Rule 8.201 (Commodity-Based Trust Shares); Rule 8.202 (Currency Trust Shares); Rule 8.203 (Commodity Index Trust Shares); Rule 8.204 (Commodity Futures Trust Shares); Rule 8.600 (Managed Fund Shares); and Rule 8.700 (Managed Trust Securities).
Purpose
The Exchange proposes to amend Rules 5P, 8P, 5.2(j)(8)(e) and 98 to permit the listing of certain Exchange Traded Products (“ETPs”) that have a component NMS Stock listed on the Exchange or that are based on, or represent an interest in, an underlying index or reference asset that includes an NMS Stock listed on the Exchange (an “NYSE Component Security” or, collectively, “NYSE Component Securities”). The amendments would also permit the trading of those ETPs on the NYSE Trading Floor (“Trading Floor” or “Floor”).
Currently, Exchange rules do not permit the listing of an ETP that has underlying NYSE Component Securities. The proposed changes would permit the listing of ETPs that satisfy the composition and concentration requirements for equity-based products set forth in the listing criteria of (1) current Rules 5.2(j)(3) (Investment Company Units), 5.2(j)(6) (Equity IndexLinked Securities), 8.100 (Portfolio Depositary Receipts), 8.600 (Managed Fund Shares), and (2) Rule 5.2(j)(8) as proposed to be amended to include requirements to ensure diversification, nonconcentration, liquidity, and capitalization. Accordingly, these ETPs would not be covered by the restrictions associated with the listing of ETPs that have an NYSE Component Security.
Moreover, the Commission noted that the listing standards required
(1) each product to have a minimum of 13 securities in the underlying portfolio,
(2) that the most heavily weighted component securities could not exceed 25% of the weight of the portfolio, and
(3) that the five most heavily weighted component securities could not exceed 65% of the weight of the portfolio.
As the Commission concluded, [b]y limiting the proposal to broad-based ETFs and TIRs, concerns regarding informational advantages about individual securities are lessened.
Finally, the Commission noted that the capitalization and liquidity requirements imposed by the listing standards -- for example, the component securities that in the aggregate account for at least 90% of the weight of the portfolio must have a minimum market value of at least $75 million and the component securities representing 90% of the weight of the portfolio each must have a minimum trading volume during each of the last six month of at least 250,000 shares -- “should reduce the likelihood that any market participant has an unfair information advantage about the ETF, TIR, its related options, or its component securities, or that a market participant would not be able to manipulate the prices of the ETFs, TIRs, or their related options.”
