Federal Register / Vol. 75, No. 249 / Wednesday, December 29, 2010 / Notices 82109 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3These ETNs include: the Barclays Short B 

Leveraged Inverse S&P 500 TR ETN (‘‘BXDB’’), the 

Barclays Short C Leveraged Inverse S&P 500 TR 

ETN (‘‘BXDC’’) and the Barclays Short D Leveraged 

Inverse S&P 500 TR ETN (‘‘BXDD’’). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63592; File No. SR–BX– 

2010–090] 

Self-Regulatory Organizations; 

NASDAQ OMX BX, Inc.; Notice of Filing 

and Immediate Effectiveness of 

Proposed Rule Change To Amend the 

BOX Trading Rules To Permit Trading 

Options on Leveraged (Multiple or 

Inverse) Exchange-Traded Notes and 

Broaden the Definition of ‘‘FuturesLinked Securities’’ 

December 21, 2010. 

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 December 

15, 2010, NASDAQ OMX BX, Inc. (the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the self-regulatory organization. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Chapter IV, Section 3 (Criteria for 

Underlying Securities) of the Rules of 

the Boston Options Exchange Group, 

LLC (‘‘BOX’’) to: (a) Permit trading 

options on leveraged (multiple or 

inverse) exchange-traded notes, and (b) 

broaden the definition of ‘‘FuturesLinked Securities.’’ The text of the 

proposed rule change is available from 

the principal office of the Exchange, at 

the Commission’s Public Reference 

Room and also on the Exchange’s 

Internet Web site at http:// 

nasdaqomxbx.cchwallstreet.com/ 

NASDAQOMXBX/Filings/. 

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 

self-regulatory organization 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 self-regulatory organization 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 purpose of the proposed rule 

change is to amend Chapter IV, Section 

3(k) of the BOX Rules, titled IndexLinked Securities, to: (a) Permit trading 

options on leveraged (multiple or 

inverse) exchange-traded notes 

(‘‘ETNs’’), and (b) broaden the definition 

of ‘‘Futures-Linked Securities.’’ ETNs are 

also known as ‘‘Index-Linked 

Securities,’’ which are designed for 

investors who desire to participate in a 

specific market segment by providing 

exposure to one or more identifiable 

underlying securities, commodities, 

currencies, derivative instruments or 

market indexes of the foregoing. IndexLinked Securities are the nonconvertible debt of an issuer that have 

a term of at least one (1) year but not 

greater than thirty (30) years. Despite 

the fact that Index-Linked Securities are 

linked to an underlying index, each 

trades as a single, exchange-listed 

security. Accordingly, rules pertaining 

to the listing and trading of standard 

equity options apply to Index-Linked 

Securities. 

Leveraged ETN Options 

The Exchange proposes to amend 

Chapter IV, Section 3(k) of the BOX 

Rules to permit the listing of options on 

leveraged (multiple or inverse) ETNs. 

Multiple leveraged ETNs seek to 

provide investment results that 

correspond to a specified multiple of the 

percentage performance on a given day 

of a particular Reference Asset. Inverse 

leveraged ETNs seek to provide 

investment results that correspond to 

the inverse (opposite) of the percentage 

performance on a given day of a 

particular Reference Asset by a specified 

multiple. Multiple leveraged ETNs and 

inverse leveraged ETNs differ from 

traditional ETNs in that they do not 

merely correspond to the performance 

of a given Reference Asset, but rather 

attempt to match a multiple or inverse 

of a Reference Asset’s performance. 

The Barclays Long B Leveraged S&P 

500 TR ETN (‘‘BXUB’’), the Barclays 

Long C Leveraged S&P 500 TR ETN 

(‘‘BXUC’’) and the UBS AG 2x Monthly 

Leveraged Long Exchange Traded 

Access Securities (‘‘E–TRACS’’) linked 

to the Alerian MLP Infrastructure Index 

due July 9, 2040 (‘‘MLPL’’) currently 

trade on the NYSE Arca Stock Exchange 

and are examples of multiple leveraged 

ETNs. In addition, the Barclays ETN + 

Inverse S&P 500 VIX Short-Term 

Futures ETN (‘‘XXV’’) currently trades 

on the NYSE Arca Stock Exchange and 

is an example of an inverse leveraged 

ETN. The NYSE Arca Stock Exchange 

also lists several other inverse leveraged 

ETNs for trading.3

Currently, Chapter IV, Section 3(k) of 

the BOX Rules provides that securities 

deemed appropriate for options trading 

shall include shares or other securities 

(‘‘Equity Index-Linked Securities,’’ 

‘‘Commodity-Linked Securities,’’ 

‘‘Currency-Linked Securities,’’ ‘‘Fixed 

Income Index-Linked Securities,’’ 

‘‘Futures-Linked Securities,’’ and 

‘‘Multifactor Index-Linked Securities,’’ 

collectively known as ‘‘Index-Linked 

Securities’’) that are principally traded 

on a national securities exchange and an 

‘‘NMS Stock’’ (as defined in Rule 600 of 

Regulation NMS under the Securities 

Exchange Act of 1934), and represent 

ownership of a security that provides for 

the payment at maturity, as described 

below: 

• Equity Index-Linked Securities are 

securities that provide for the payment 

at maturity of a cash amount based on 

the performance of an underlying index 

or indexes of equity securities (‘‘Equity 

Reference Asset’’); 

• Commodity-Linked Securities are 

securities that provide for the payment 

at maturity of a cash amount based on 

the performance of one or more physical 

commodities or commodity futures, 

options on commodities, or other 

commodity derivatives or CommodityBased Trust Shares or a basket or index 

of any of the foregoing (‘‘Commodity 

Reference Asset’’); 

• Currency-Linked Securities are 

securities that provide for the payment 

at maturity of a cash amount based on 

the performance of one or more 

currencies, or options on currencies or 

currency futures or other currency 

derivatives or Currency Trust Shares (as 

defined in Subsection (i) of this Section 

3), or a basket or index of any of the 

foregoing (‘‘Currency Reference Asset’’); 

• Fixed Income Index-Linked 

Securities are securities that provide for 

the payment at maturity of a cash 

amount based on the performance of 

one or more notes, bonds, debentures or 

evidence of indebtedness that include, 

but are not limited to, U.S. Department 

of Treasury securities (‘‘Treasury 

Securities’’), government-sponsored 

entity securities (‘‘GSE Securities’’), 

municipal securities, trust preferred 


srobinson on DSKHWCL6B1PROD with NOTICES
82110 Federal Register / Vol. 75, No. 249 / Wednesday, December 29, 2010 / Notices 

4See Chapter XIV, Section 5 (Position Limits for 

Broad-Based Index Options) Section 6 (Position 

Limits for Industry Index Options) and Section 8 

(Exercise Limits) of the BOX Rules. 5See Chapter XIII concerning Margin 

Requirements. 

securities, supranational debt and debt 

of a foreign country or subdivision 

thereof or a basket or index of any of the 

foregoing (‘‘Fixed Income Reference 

Asset’’); 

• Futures-Linked Securities are 

securities that provide for the payment 

at maturity of a cash amount based on 

the performance of an index of (a) 

futures on Treasury Securities, GSE 

Securities, supranational debt and debt 

of a foreign country or subdivision 

thereof, or options or other derivatives 

on any of the foregoing; or (b) interest 

rate futures or options or derivatives on 

the foregoing in this subparagraph (b); 

or (c) CBOE Volatility Index (VIX) 

Futures (‘‘Futures Reference Asset’’); and 

• Multifactor Index-Linked Securities 

are securities that provide for the 

payment at maturity of a cash amount 

based on the performance of any 

combination of two or more Equity 

Reference Assets, Commodity Reference 

Assets, Currency Reference Assets, 

Fixed Income Reference Assets, or 

Futures Reference Assets (‘‘Multifactor 

Reference Asset’’). 

For purposes of Chapter IV, Section 

3(k) of the BOX Rules, Equity Reference 

Assets, Commodity Reference Assets, 

Currency Reference Assets, Fixed 

Income Reference Assets, Futures 

Reference Assets together with 

Multifactor Reference Assets, 

collectively are referred to as ‘‘Reference 

Assets.’’ 

In addition, [sic] Index-Linked 

Securities must meet the criteria and 

guidelines for underlying securities set 

forth in Chapter IV, Section 3(b) of the 

BOX Rules; or (ii) the Index-Linked 

Securities must be redeemable at the 

option of the holder at least on a weekly 

basis through the issuer at a price 

related to the applicable underlying 

Reference Asset. In addition, the issuing 

company is obligated to issue or 

repurchase the securities in aggregation 

units for cash, or cash equivalents, 

satisfactory to the issuer of IndexLinked Securities which underlie the 

option as described in the Index-Linked 

Securities prospectus. 

The Exchange proposes to amend 

Chapter IV, Section 3(k) of the BOX 

Rules to expand the type of IndexLinked Securities that may underlie 

options to include leveraged (multiple 

or inverse) ETNs. To affect this change, 

the Exchange proposes to amend 

Chapter IV, Section 3(k) of the BOX 

Rules at subparagraph (i) by adding the 

phrase, ‘‘or the leveraged (multiple or 

inverse) performance’’ to each of the 

subparagraphs ((1) through (6)) in that 

section which set forth the different 

eligible Reference Assets. 

The Exchange’s current continuing 

listing standards for ETN options will 

continue to apply. Specifically, under 

Chapter IV, Section 4(k) of the BOX 

Rules, ETN options shall not be deemed 

to meet the Exchange’s requirements for 

continued approval, and the Exchange 

shall not open for trading any additional 

series of option contracts of the class 

covering such Securities whenever the 

underlying Securities are delisted and 

trading in the Securities is suspended 

on a national securities exchange, or the 

Securities are no longer an ‘‘NMS Stock’’ 

(as defined in Rule 600 of Regulation 

NMS under the Securities Exchange Act 

of 1934). In addition, the Exchange shall 

consider the suspension of opening 

transactions in any series of options of 

the class covering Index-Linked 

Securities in any of the following 

circumstances: (1) The underlying 

Index-Linked Security fails to comply 

with the terms of Chapter IV, Section 

3(k), (2) in accordance with the terms of 

Chapter IV, Section 4(b), in the case of 

options covering Index-Linked 

Securities when such options were 

approved pursuant to Chapter IV, 

Section 3(k), except that, in the case of 

options covering Index-Linked 

Securities approved pursuant to Chapter 

IV, Section 3(k)(iii)(2), that are 

redeemable at the option of the holder 

at least on a weekly basis, then option 

contracts of the class covering such 

Securities may only continue to be open 

for trading as long as the Securities are 

listed on a national securities exchange 

and are ‘‘NMS’’ stock as defined in Rule 

600 of Regulation NMS; (3) in the case 

of any Index-Linked Security trading 

pursuant to Chapter IV, Section 3(k), the 

value of the Reference Asset is no longer 

calculated; or (4) such other event shall 

occur or condition exist that in the 

opinion of the Exchange make further 

dealing in such options on BOX 

inadvisable. Expanding the eligible 

types of ETNs for options trading under 

Chapter IV, Section 3(k) of the BOX 

Rules will not have any effect on the 

rules pertaining to position and exercise 

limits 4 or margin.5

This proposal is necessary to enable 

the Exchange to list and trade on BOX 

options on shares of the BXUB, BXUC, 

XXV, BXDB, BXDC, BXDD and the 

MLPL. BOX believes the ability to trade 

options on leveraged (multiple or 

inverse) ETNs will provide investors 

with greater risk management tools. The 

proposed amendment to the Exchange’s 

listing criteria for options on ETNs is 

necessary to ensure that the Exchange 

will be able to list options on the above 

listed leveraged (multiple and inverse) 

ETNs as well as other leveraged 

(multiple and inverse) ETNs that may be 

introduced in the future. 

The Exchange represents that its 

existing surveillance procedures 

applicable to trading in options are 

adequate to properly monitor the 

trading in leveraged (multiple and 

inverse) ETN options. 

It is expected that The Options 

Clearing Corporation will seek to revise 

the Options Disclosure Document 

(‘‘ODD’’) to accommodate the listing and 

trading of leveraged (multiple and 

inverse) ETN options. 

Broaden the Definition of ‘‘FuturesLinked Securities’’ 

The second change being proposed by 

this filing is to amend the definition of 

‘‘Futures-Linked Securities’’ set forth in 

Chapter IV, Section 3(k)(i)(5) of the BOX 

Rules. Currently, the definition of 

‘‘Futures-Linked Securities’’ is limited to 

securities that provide for the payment 

at maturity of a cash amount based on 

the performance of an index of (a) 

futures on Treasury Securities, GSE 

Securities, supranational debt and debt 

of a foreign country or a subdivision 

thereof, or options or other derivatives 

on any of the foregoing; or (b) interest 

rate futures or options or derivatives on 

the foregoing in this subparagraph (b); 

or (c) CBOE Volatility Index (VIX) 

Futures. 

Chapter IV, Section 3(k) of the BOX 

Rules sets forth generic listing criteria 

for securities that may serve as 

underlyings for listed options trading. 

BOX believes that the current definition 

of ‘‘Futures-Linked Securities’’ is 

unnecessarily restrictive and requires 

the Exchange to submit a filing to 

amend the definition each time a new 

ETN is issued that tracks the 

performance of an index of futures/ 

options on futures that is not 

enumerated in the existing rule. To 

address this issue, the Exchange is 

proposing to revise the definition of 

‘‘Futures- Linked Securities’’ to provide 

that they are securities that provide for 

the payment at maturity of a cash 

amount based on the performance or the 

leveraged (multiple or inverse) 

performance of an index or indexes of 

futures contracts or options or 

derivatives on futures contracts 

(‘‘Futures Reference Asset’’). BOX notes 

that all ETNs eligible for options trading 

must be principally traded on a national 

securities exchange and must be an 

‘‘NMS Stock.’’ As a result, BOX believes 

that broadening the definition of 


srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 75, No. 249 / Wednesday, December 29, 2010 / Notices 82111 

6 15 U.S.C. 78f(b). 

7 15 U.S.C. 78f(b)(5). 

8 15 U.S.C. 78s(b)(3)(A). 

9 17 CFR 240.19b–4(f)(6). In addition, Rule 19– 

4(f)(6)(iii) requires a self-regulatory organization to 

provide the Commission with written notice of its 

intent to file the proposed rule change, along with 

a brief description and text of the proposed rule 

change, at least five business days prior to the date 

of filing of the proposed rule change, or such 

shorter time as designated by the Commission. The 

Exchange has fulfilled this requirement. 

10For purposes only of waiving the 30-day 

operative delay, the Commission has also 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

11See Securities Exchange Act Release No. 63202 

(October 28, 2010), 75 FR 67794 (November 3, 2010) 

(SR–CBOE–2010–080). 

12The text of the proposed rule change is 

available on the Commission’s Web site at 

www.sec.gov. 

13 17 CFR 200.30–3(a)(12). 

‘‘Futures-Linked Securities’’ by no 

longer specifically listing the types of 

futures and options on futures contracts 

that may be tracked by an ETN is 

appropriate. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,6 in general, and furthers the 

objectives of Section 6(b)(5) of the Act,7

in particular, in that it is designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to foster 

cooperation and coordination with 

persons engaged in facilitating 

transactions in securities, and to remove 

impediments to and perfect the 

mechanisms of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest. The Exchange believes 

that the proposed rules applicable to 

trading pursuant to generic listing and 

trading criteria serve to foster investor 

protection. 

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 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 has neither solicited 

nor received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because 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) by its terms does not become 

operative for 30 days after the date of 

this 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 has become effective pursuant to 

Section 19(b)(3)(A) of the Act 8 and Rule 

19b–4(f)(6) thereunder.9

A proposed rule change filed under 

Rule 19b–4(f)(6) normally does not 

become operative for 30 days after the 

date of filing. However, Rule 19b– 

4(f)(6)(iii) permits the Commission to 

designate a shorter time if such action 

is consistent with the protection of 

investors and the public interest. The 

Exchange requests that the Commission 

waive the 30-day operative delay so that 

the Exchange can list and trade options 

on leveraged (multiple or inverse) ETNs 

and implement the amended definition 

of ‘‘Futures-Linked Securities’’ 

immediately. The Commission believes 

that waiving the 30-day operative delay 

is consistent with the protection of 

investors and the public interest.10 The 

Commission notes the proposal is 

substantively identical to a proposal 

that was recently approved by the 

Commission, and does not raise any 

new regulatory issues.11 For these 

reasons, the Commission designates the 

proposed rule change as operative upon 

filing. 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend 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. 

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 rulecomments@sec.gov. Please include File 

Number SR–BX–2010–090 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–BX–2010–090. 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 

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 Web site viewing and 

printing 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.12 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–BX– 

2010–090 and should be submitted on 

or before January 19, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–32728 Filed 12–28–10; 8:45 am] 

BILLING CODE 8011–01–P 


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