[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
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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