Federal Register / Vol. 75, No. 189 / Thursday, September 30, 2010 / Notices 60411 

1This Release is limited to those ‘‘Commodity 

ETFs’’ that are structured as grantor trusts with an 

investment objective of achieving the price 

performance of the underlying commodity or 

commodities held by such trust, less expenses. 

Further, for purposes of this Release, the term or 

label ‘‘ETF’’ is loosely applied to precious metal 

commodity-based ETFs (as used interchangeably 

herein, ‘‘Precious Metal Commodity-Based ETFs’’ or 

‘‘Commodity-Based ETFs’’), see section 3(a)(1) of the 

Investment Company Act of 1940 (the ‘‘1940 Act’’) 

and Securities and Exchange Commission (‘‘SEC’’), 

Exchange-Traded Funds, Investment Company Act 

Release No. 28192 (March 11, 2008), 73 FR 14618, 

14623 (March 18, 2008). As used herein, ‘‘Precious 

Metal’’ indicates either gold, silver, palladium, or 

platinum. 

Additionally, when we refer to an ‘‘ETF’’ in this 

Concept Release, we are not (unless the context 

otherwise requires) referring to an entity that meets 

the definition of an ‘‘investment company’’ and is 

registered under the 1940 Act. This Release also 

does not address those ‘‘ETF Commodity Pools’’ that 

attempt to track a benchmark index or commodity 

by engaging in the purchase of commodity futures 

and/or options contracts. These ETF Commodity 

Pools are subject to regulation by the Commission 

as a commodity pool operator (‘‘CPO’’) and/or 

commodity trading adviser (‘‘CTA’’) and may not 

implicate regulatory issues raised in this Release. 

2See e.g. NYSEArca Rule 8.201 (CommodityBased Trust Shares); NYSEAmex Rule 1200A 

(Commodity-Based Trust Shares); NYSE Rule 1300 

(streetTracks Gold Shares); and BATS Exchange 

Rule 14.4. 

3See, however, Securities Exchange Act Release 

Nos. 62402 (June 29, 2010), 75 FR 39292 (July 8, 

2010) (notice of filing of a proposal to list and trade 

shares of the ETFS Precious Metals Basket Trust 

consisting of gold, silver, palladium, and platinum) 

and 62620 (July 30, 2010) (notice of a proposal to 

list and trade shares of ETFS White Metals Basket 

Trust consisting of silver, palladium, and 

platinum). 

4For a previous Commission discussion of the 

structural and arbitrage mechanisms underlying a 

physical gold ETF, see Description of the 

Underlying Commodity in CFTC, Proposed 

Exemptive Order for ST Gold Futures Contracts, 73 

FR 13867, at 13868 (March 14, 2008). 

5See CFTC, Order Exempting the Trading and 

Clearing of Certain Products Related to SPDR® 

Gold Trust Shares, 73 FR 31981 (June 5, 2008), 

CFTC, Order Exempting the Trading and Clearing 

of Certain Products Related to iShares® COMEX 

Gold Trust Shares and iShares® Silver Trust 

Shares, 73 FR 79830 (December 30, 2008), and 

CFTC, Order Exempting the Trading and Clearing 

of Certain Products Related to ETFS Physical Swiss 

Gold Shares and ETFS Physical Silver Shares, 75 

FR 37406 (June 29, 2010) (collectively, the 

‘‘Previous Orders’’). 

This notice is published in 

accordance with sections 751(b)(1) and 

777(i)(1) of the Act and 19 CFR 351.216. 

Dated: September 24, 2010. 

Susan H. Kuhbach, 

Acting Deputy Assistant Secretary for 

Antidumping and Countervailing Duty 

Operations. 

[FR Doc. 2010–24602 Filed 9–29–10; 8:45 am] 

BILLING CODE 3510–DS–P 

DEPARTMENT OF COMMERCE 

International Trade Administration 

The Manufacturing Council: Meeting of 

the Manufacturing Council 

AGENCY: International Trade 

Administration, U.S. Department of 

Commerce. 

ACTION: Notice of an Open Meeting. 

SUMMARY: The Manufacturing Council 

will hold a meeting to discuss and 

identify the priority issues affecting the 

U.S. manufacturing industry, which 

may include increasing exports, supply 

chain and access to credit, among 

others. The Council was re-chartered on 

April 8, 2010, to advise the Secretary of 

Commerce on matters relating to the 

U.S. manufacturing industry. 

DATES: October 14, 2010 

Time: 10 a.m. 

ADDRESSES: Department of Commerce, 

1401 Constitution Avenue, NW., Room 

4830, Washington, DC, 20230. Because 

of building security, all non-government 

attendees must pre-register. This 

program will be physically accessible to 

people with disabilities. Seating is 

limited and will be on a first come, first 

served basis. Requests for sign language 

interpretation, other auxiliary aids, or 

pre-registration, should be submitted no 

later than October 7, 2010, to Jennifer 

Pilat, the Manufacturing Council, Room 

4043, 1401 Constitution Avenue, NW., 

Washington, DC, 20230, telephone 202– 

482–4501, jennifer.pilat@trade.gov. Last 

minute requests will be accepted, but 

may be impossible to fill. 

FOR FURTHER INFORMATION CONTACT: 

Jennifer Pilat, the Manufacturing 

Council, Room 4043, 1401 Constitution 

Avenue, NW., Washington, DC, 20230, 

telephone: 202–482–4501, e-mail: 

jennifer.pilat@trade.gov. 

SUPPLEMENTARY INFORMATION: 

No time will be available for oral 

comments from members of the public 

attending the meeting. Any member of 

the public may submit pertinent written 

comments concerning the Council’s 

affairs at any time before and after the 

meeting. Comments may be submitted 

to Jennifer Pilat at the contact 

information indicated above. To be 

considered during the meeting, 

comments must be received no later 

than 5 p.m. Eastern Time on October 7, 

2010, to ensure transmission to the 

Council prior to the meeting. Comments 

received after that date will be 

distributed to the members but may not 

be considered at the meeting. 

Copies of Council meeting minutes 

will be available within 90 days of the 

meeting. 

Dated: September 27, 2010. 

Jennifer Pilat, 

Executive Secretary, The Manufacturing 

Council. 

[FR Doc. 2010–24604 Filed 9–27–10; 4:15 pm] 

BILLING CODE 3510–DR–P 

COMMODITY FUTURES TRADING 

COMMISSION 

Request for Comment on Options for 

a Proposed Exemptive Order Relating 

to the Trading and Clearing of 

Precious Metal Commodity-Based 

ETFs; Concept Release 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of options for a proposed 

exemptive order and request for 

comment; concept release. 

SUMMARY: Recently, the Commodity 

Futures Trading Commission 

(‘‘Commission,’’ or ‘‘CFTC’’) has been 

confronted with the question of how to 

treat certain transactions on fractional 

undivided interests, or shares, in single 

commodity investment products 

referred to as exchange traded funds 

(‘‘ETF’’ or ‘‘ETFs’’),1 primarily in the 

metals complex. The ETFs have in all 

relevant instances been structured as 

trusts (singularly, ‘‘ETF Trust’’ or 

‘‘Trust’’),2 the assets of which consist of 

holdings of one specific physical 

commodity.3 The explicit and sole 

investment objective of each of these 

ETF Trusts is to track as nearly as 

possible the spot price of the underlying 

physical commodity less the expenses 

of trust operations. The listing of these 

ETF shares provides shareholders with 

efficient exposure to commodity market 

price movements.4 These Precious 

Metal Commodity-Based ETFs have 

primarily focused on holding either gold 

or silver, with a recent expansion into 

palladium and platinum. The 

Commission has issued Orders pursuant 

to Section 4(c) of the Commodity 

Exchange Act (the ‘‘Act’’) permitting the 

trading and clearing of certain 

transactions on these Trusts as, 

respectively, options on securities and 

security futures.5 The Previous Orders 

have provided exemptions from certain 

provisions of the Act, or the 

Commission’s regulations thereunder, 

which might have been transgressed by 

trading or clearing, among other things, 

options and futures on CommodityBased ETFs. The exemption mechanism 

has enabled the Commission to reserve 

judgment as to the jurisdictional 

classification (i.e. commodity or 

security) of Commodity-Based ETFs and 

options and futures on CommodityBased ETFs while at the same time 

providing a mechanism to ensure both 

that the Commission’s regulatory 

mstockstill on DSKH9S0YB1PROD with NOTICES6

60412 Federal Register / Vol. 75, No. 189 / Thursday, September 30, 2010 / Notices 

6See NYSE Information Memo Number 04–59 

(November 18, 2004) (trading of streetTRACKS Gold 

Shares: Rules 1300 and 1301) and Securities 

Exchange Act Release No. 50603 (October 28, 2004), 

69 FR 64614 (November 5, 2004) (approval of the 

listing and trading of streetTRACKS Gold Shares). 

7See, e.g., Securities Exchange Act Release Nos. 

51058 (January 19, 2005), 70 FR 3749 (January 26, 

2005) (approval of the iShares COMEX Gold Trust 

(IAU)); 53521 (March 20, 2006), 71 FR 14967 

(March 24, 2006) (approval of the iShares Silver 

Trust (SLV)); 59781 (April 17, 2009), 74 FR 18771 

(April 24, 2009) (approval of the ETFS Silver Trust); 

and 59895 (May 8, 2009), 74 FR 22993 (May 15, 

2009) (approval of the ETFS Gold Trust). 

8See Securities Exchange Act Release No. 61220 

(December 22, 2009), 74 FR 68895 (December 29, 

2009) (approval of ETFS Palladium) and 60970 

(November 9, 2009), 74 FR 59319 (November 17, 

2009) (approval of ETFS Platinum). 

9NAV is the amount by which the value of an 

entity’s assets exceeds the value of its liabilities. 

NAV is typically calculated on a per-share basis by 

dividing the total value of all assets in a portfolio, 

less any liabilities, by the number of shares 

outstanding. 

10See NYSE Explanation of ETFs, available at 

http://www.nyse.com/pdfs/ETFs7109.pdf, and SEC 

statement regarding ETFs, available at http:// 

www.sec.gov/answers/etf.htm. See also Kathleen 

Moriarty, Exchange-Traded Funds: Legal and 

Structural Issues Worldwide, 29 Int’l Bus. L. 346 

(2001); Stuart M. Strauss, Exchange-Traded 

Funds—the Wave of the Future? 7 Investment 

Lawyer 1 (2000); and Stuart Strauss & Scott M. 

Zoltowski, Exchange Traded Funds, in A.L.I.– 

A.B.A., Investment Mgmt Reg. 67 (Aug. 2006). 

11See Grimm, A Process of Natural Correction: 

Arbitrage and the Regulation of Exchange-Traded 

Funds Under the Investment Company Act, 1 U. Pa. 

J. Bus & Emp. Law 95 (2008). See also Securities 

Exchange Act Release No. 31591 (), 57 FR 60253 

(December 18, 1992) (File No. SR–AMEX–92–18) 

(order approving proposed rule change by the Amex 

relating to Portfolio Depository Receipts), n. 25. 

12See Securities Exchange Act Release No. 57894 

(May 30, 2008), 73 FR 32061 (June 5, 2008) 

(approval of SPDR Gold Trust options), and CFTC, 

Order Exempting the Trading and Clearing of 

Certain Products Related to SPDR Gold Trust 

Shares, 73 FR 31981 (June 5, 2008), and Exemptive 

Order for SPDR Gold Futures Contracts, 73 FR 

31979 (June 5, 2008). 

13See footnote 5, supra. 

oversight needs are satisfied (whether 

through regulation by the Securities and 

Exchange Commission (‘‘SEC’’) or by 

attaching conditions to the exemption 

orders) and that novel products may be 

introduced without undue delay for 

market participant and investor use. 

More recently, the Options Clearing 

Corporation (the ‘‘OCC’’) has sought 

approval of rules permitting similar 

treatment of options and futures on 

certain ETFs based on palladium and 

platinum. 

The Commission is issuing this 

Release to solicit comments on: (i) 

Options for a proposed exemptive order 

in connection with the OCC’s request 

for approval of a rule change; and (ii) 

the Commission’s treatment of Precious 

Metal Commodity-Based ETFs 

generally, including whether the 

Commission should exempt the trading 

and clearing of certain options and 

futures transactions on gold and silver, 

and/or palladium and platinum, 

Commodity-Based ETFs on a categorical 

basis. 

DATES: Comments must be received on 

or before November 1, 2010. All 

comments must be in English, or if not 

in English, accompanied by an English 

translation. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: CommodityETFs@cftc.gov. 

Include ‘‘Commodity Based ETFs’’ in the 

subject line of the message. 

• Fax: 202–418–5521. 

• Mail: Send to David A. Stawick, 

Secretary, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

• Courier: Same as mail above. 

All comments received will be posted 

without change to http:// 

www.CFTC.gov/. 

FOR FURTHER INFORMATION CONTACT: 

Ryne Miller, Attorney Advisor, 202– 

418–5921, rmiller@cftc.gov, or David 

Van Wagner, Chief Counsel, 202–418– 

5481, dvanwagner@cftc.gov, Division of 

Market Oversight, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1151 21st Street, NW., 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: 

Part I—Proposed Exemptive Order 

A. Background 

The first Commodity-Based ETF in 

the U.S. was listed and traded on the 

New York Stock Exchange (‘‘NYSE’’) in 

November 2004.6 Since that time, 

Commodity-Based ETFs have generally 

focused on the precious metals of gold 

and silver,7 with palladium and 

platinum 8 having been the subject of a 

Commodity-Based ETF only recently. 

The structure and trading of 

Commodity-Based ETFs is virtually 

identical to traditional ETFs listed and 

traded on national securities exchanges. 

Shares of ETFs are bought and sold 

throughout the trading day on national 

securities exchanges. Unlike traditional 

mutual funds, ETFs do not sell or 

redeem their individual shares at net 

asset value (‘‘NAV’’).9 Instead, large 

institutional investors known as 

Authorized Participants (‘‘APs’’) buy 

shares of the ETF directly from the Trust 

in creation unit sizes (‘‘Creation Units’’), 

varying from 25,000 to 200,000 shares, 

generally in exchange for an in-kind 

deposit of securities.10 Conversely, APs 

may sell or redeem shares of an ETF 

only in Creation Unit size and generally 

in exchange for portfolio securities 

(‘‘Redemption Baskets’’). In limited 

cases, such as an ETF investing in 

illiquid securities or derivatives, APs 

may deposit cash instead of securities in 

exchange for shares of an ETF. For 

Commodity-Based ETFs, Creation Units 

and Redemption Baskets require the 

delivery of the relevant physical 

commodity plus any cash based on the 

ETF’s NAV. ETF shares are traded on 

national securities exchanges at market 

prices that may, and do, differ from 

NAV. 

APs, who are typically exchange 

market makers or specialists, use their 

ability to exchange Creation Units with 

their underlying assets to provide 

liquidity for the ETF shares and help 

ensure that their intraday market price 

approximates the NAV of the ETF. 

Other investors trade ETF shares on 

national securities exchanges in the 

secondary market. The ability to 

purchase and redeem Creation Units 

and Redemption Baskets gives ETFs an 

inherent arbitrage mechanism intended 

to minimize the potential deviation 

between the market price and NAV of 

ETF shares.11 Existing ETFs (including 

Commodity-Based ETFs) have daily 

transparent portfolios, so that APs and 

investors know exactly what portfolio 

assets they must assemble if they wish 

to purchase a Creation Unit. The 

national securities exchanges that trade 

ETF shares disseminate an updated 

indicative NAV throughout the trading 

day, typically at 15-second intervals. 

Although similar in practice to 

traditional ETFs that invest in 

securities, by law, Commodity-Based 

ETFs are not subject to specific SEC 

regulation under the 1940 Act. Instead, 

Commodity-Based ETFs are subject to 

SEC disclosure review by the SEC’s 

Division of Corporation Finance as well 

as exchange regulation. 

Based on the belief that options and 

security futures trading benefits the 

liquidity and relative success of the 

underlying ETF, the national securities 

exchanges and ETF sponsors have 

sought to be able to trade options and 

futures on Commodity-Based ETFs. In 

2008, the Commission and the SEC 

provided regulatory approvals and 

exemptions so that options on shares of 

the streetTracks Gold Trust (predecessor 

to the SPDR Gold Trust) (symbol: GLD) 

would be able to be listed and traded on 

the various options exchanges.12 Since 

2008, the Commission has permitted 

options and futures on several other 

gold and silver Commodity-Based 

ETFs.13

mstockstill on DSKH9S0YB1PROD with NOTICES6

Federal Register / Vol. 75, No. 189 / Thursday, September 30, 2010 / Notices 60413 

14Section 4(c)(1) of the Act provides in full that: 

In order to promote responsible economic or 

financial innovation and fair competition, the 

Commission by rule, regulation, or order, after 

notice and opportunity for hearing, may (on its own 

initiative or on application of any person, including 

any board of trade designated or registered as a 

contract market or derivatives transaction execution 

facility for transactions for future delivery in any 

commodity under section 7 of this title) exempt any 

agreement, contract, or transaction (or class thereof) 

that is otherwise subject to subsection (a) of this 

section (including any person or class of persons 

offering, entering into, rendering advice or 

rendering other services with respect to, the 

agreement, contract, or transaction), either 

unconditionally or on stated terms or conditions or 

for stated periods and either retroactively or 

prospectively, or both, from any of the requirements 

of subsection (a) of this section, or from any other 

provision of this chapter (except subparagraphs 

(c)(ii) and (D) of section 2(a)(1) of this title, except 

that the Commission and the Securities and 

Exchange Commission may by rule, regulation, or 

order jointly exclude any agreement, contract, or 

transaction from section 2(a)(1)(D) of this title), if 

the Commission determines that the exemption 

would be consistent with the public interest. 

15See footnote 5, supra. 

16Under Section 4(c), the Commission is not 

required to make an express finding of jurisdiction 

over a product as a condition precedent to issuing 

a Section 4(c) exemption. The 4(c) Conference 

Report states: ‘‘The Conferees do not intend that the 

exercise of exemptive authority by the Commission 

would require any determination beforehand that 

the agreement, instrument, or transaction for which 

an exemption is sought is subject to the Act. Rather, 

this provision provides flexibility for the 

Commission to provide legal certainty to novel 

instruments where the determination as to 

jurisdiction is not straightforward. Rather than 

making a finding as to whether a product is or is 

not a futures contract, the Commission in 

appropriate cases may proceed directly to issuing 

an exemption.’’ See House Conf. Report No. 102– 

978, 1992 U.S.C.C.A.N. 3179, 3214–3215 (‘‘4(c) 

Conf. Report’’). 

17 Dodd-Frank Wall Street Reform and Consumer 

Protection Act, Public Law 111–203, 124 Stat. 1376 

(2010). 

18See e.g. §§ 717 and 718 of the Dodd-Frank Act, 

which cover ‘‘New Product Approval CFTC—SEC 

Process’’ and ‘‘Determining Status of Novel 

Derivative Products’’, respectively. 

19The complete submission is made available on 

the Commission’s Web site at: http://www.cftc.gov/ 

stellent/groups/public/@rulesandproducts/ 

documents/ifdocs/rul030110occ001.pdf. 

20Shares of the Palladium Products are traded on 

NYSE Arca under the symbol ‘‘PALL’’. 

21Shares of the Platinum Products are traded on 

NYSE Arca under the symbol ‘‘PPLT’’. 

22These concerns arise from the Commission’s 

statutory mandate under Section 6(c) of the Act, 

which charges the Commission with manipulation 

authority regarding price of ‘‘any commodity, in 

interstate commerce, or for future delivery [* * *].’’ 

See Section 6(c) of the Act. 

From a procedural standpoint, the 

issue of the regulation of CommodityBased ETFs comes before the CFTC 

through filings by a contract market or 

a clearing organization in its capacity as 

a CFTC registrant, requesting 

Commission approval of certain 

proposed rule change(s) which would 

permit it to treat options and futures 

transactions on such ETFs as options on 

securities and security futures, 

respectively. In order to approve such 

rule changes, the Commission has 

issued exemptive orders for the options 

or futures in question pursuant to its 

exemptive authority under Section 

4(c)(1) of the Commodity Exchange Act 

(‘‘Act’’), 7 U.S.C. 6(c).14 As noted above, 

the Commission has issued three such 

exemptive ETF orders, all of which have 

been confined to options and futures on 

shares of specific physical gold and 

silver ETFs.15

Notably, in issuing the Previous 

Orders providing Section 4(c) 

exemptions for options and futures on 

gold and silver ETF shares, the 

Commission did not make any finding 

that the options were either options on 

securities or options subject to the Act, 

nor did it make any finding that the 

futures were, or were not, security 

futures.16 Rather, the exemptions 

permitted the trading and clearing of 

options and/or futures on the 

Commodity-Based ETFs as, respectively, 

options on securities and security 

futures. In doing so, the Commission 

reserved making any affirmative 

determination as to whether shares of 

Commodity-Based ETFs are more 

properly characterized as either 

commodities or securities. That is, the 

exemptions have enabled the 

Commission to reserve judgment as to 

the appropriate jurisdictional 

classification of Commodity-Based ETFs 

and options and futures on CommodityBased ETFs. The Commission’s 

approach is consistent with the 

framework envisioned by Congress. In 

the future, and upon the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act’s (‘‘Dodd-Frank Act’’) 17

effective date, certain provisions in the 

Dodd-Frank Act will provide the 

Commission and the SEC with a legal 

and procedural framework to use 

exemptive authority to tailor joint 

regulatory solutions for novel products 

that raise jurisdictional questions—such 

as those raised by Commodity-Based 

ETFs and options and futures on 

Commodity-Based ETFs.18

B. Pending OCC Submission— 

Transactions on Palladium and 

Platinum ETFs 

By a submission dated March 1, 2010, 

the OCC has submitted for Commission 

approval, pursuant to Section 5c(c)(2) of 

the Act and Commission Regulations 

39.4(a) and 40.5, a proposed amendment 

to an interpretation of Article I, Section 

1.F.(8) of their By-Laws.19 The 

interpretation, as amended, would state 

that the OCC will clear and treat as 

options on securities any options on 

ETFS Palladium Shares (‘‘Palladium 

Products’’) 20 or ETFS Platinum Shares 

(‘‘Platinum Products’’),21 and will clear 

and treat as security futures any futures 

contracts on the Palladium and 

Platinum Products. Section 5c(c)(3) of 

the Act provides that the Commission 

must approve any such rules or rule 

amendments, which includes a 

proposed amendment of an 

interpretation, submitted for approval 

unless it finds that the rules or rule 

amendments would violate the Act. The 

Commission initially extended the 

review period of the OCC’s submission 

by forty-five days, pursuant to 

Commission Regulation 40.5(c)(1), to 

June 1, 2010. By letter dated June 1, 

2010 and pursuant to Commission 

Regulation 40.5(c)(2), the OCC 

consented to a further extension of the 

review period to September 30, 2010. 

While the OCC’s pending rule 

submission deals with options and 

futures on two specific palladium and 

platinum Commodity-Based ETFs (the 

Palladium and Platinum Products), the 

Commission is also requesting comment 

on options for a proposed exemption 

that would permit the trading and 

clearing, as options on securities and 

security futures, of options and futures 

on gold and silver, and/or palladium 

and platinum Commodity-Based ETFs 

on a categorical basis, i.e., regardless of 

issuer. 

C. Regulatory Implications of Precious 

Metal Commodity-Based ETFs 

The Commission is issuing this 

Release because, among other things, 

the Commission believes that options 

and futures on Commodity-Based ETFs 

may raise certain regulatory issues due 

to their economic similarity to options 

on commodities and futures on 

commodities traded on designated 

contract markets. The Commission’s 

concerns include the potential that 

futures contracts based on the 

commodities underlying the ETFs could 

be affected by withdrawal of the 

deliverable supply for futures contracts, 

and also, that the Commission would 

lack the jurisdictional capability to 

surveil persons with positions in the 

Commodity-Based ETFs.22

The concerns are heightened by the 

reality that options and futures on 

Commodity-Based ETFs allow market 

participants to take positions in 

instruments that appear economically 

similar to Commission-regulated 

products, including products that would 

otherwise fall under, for example, the 

Commission’s market and trade practice 

surveillance and large trader reporting 

mstockstill on DSKH9S0YB1PROD with NOTICES6

60414 Federal Register / Vol. 75, No. 189 / Thursday, September 30, 2010 / Notices 

23The Commission has previously considered 

whether special conditions should be attached to 

related exemptions granted pursuant to Section 4(c) 

of the Act: 

In order to preserve the integrity of the price 

discovery and risk management functions of 

Commission regulated markets, it may be that 

national securities exchanges that list the options 

[on precious metal commodity-based ETFs] should 

comply with market reporting requirements and 

brokers and traders that carry accounts or trade in 

options on gold and silver products should comply 

with large trader reporting requirements. 

See CFTC, Request for Comment on a Proposal 

to Exempt, Pursuant to the Authority in Section 4(c) 

of the Commodity Exchange Act, the Trading and 

Clearing of Certain Products Related to ETFS 

Physical Swiss Gold Shares and ETFS Physical 

Silver Shares, 75 FR 19619 (April 15, 2010) at 

19621. In its order exempting the trading and 

clearing of products related to the ETFS Physical 

Swiss Gold Shares and the ETFS Physical Swiss 

Silver Shares, the Commission did not impose 

market reporting and large trader reporting 

requirements. However, the Commission noted the 

comments received and future consideration with 

respect to market and large trader reporting for 

certain gold and silver option products. See CFTC, 

Order Exempting the Trading and Clearing of 

Certain Products Related to ETFS Physical Swiss 

Gold Shares and ETFS Physical Swiss Silver 

Shares, footnote 5, supra. 

24Specifically, on April 15, 2010, the OCC and 

the Chicago Board Options Exchange (‘‘CBOE’’) 

jointly delivered a letter to the Chairmen of both the 

Commission and the SEC, expressing their concern 

about the delays incurred in the case-by-case review 

method of these products. The letter is referenced 

in a public presentation available on the CBOE’s 

Web site at: http://cboenews.cboe.com/pdfs/ 

PressBriefingOIC2010FINAL.pdf, at page 7. 

25 Data from the Johnson Matthey Platinum 2010 

publication indicates that 76.5% of global platinum 

supplies came from South Africa in 2009, while 

51.1% of global palladium supplies came from 

Russia. Global platinum and palladium supplies for 

2009 totaled 5.9 million ounces and 7.1 million 

ounces respectively (based on Johnson Matthey’s 

data), compared to much larger 2009 global 

supplies of gold (116.6 million ounces) and silver 

(826.1 million ounces), based on data from the CPM 

Group Gold and Silver Yearbooks for 2010. 

26For example, NYMEX settlement data shows 

that the April 2010 to July 2010 active spread for 

platinum futures was in backwardation on 18 out 

of 19 trading days between January 14, 2010, and 

February 10, 2010, ranging from +$0.20 to +$2.00. 

The March 2010 to June 2010 active spread for 

palladium futures was in backwardation on 5 of 6 

trading days from January 14, 2010 to January 22, 

2010, ranging from +$0.05 to +$1.00. 

27Nearby backwardation occurs when the price 

for the nearby futures contract is higher than the 

price for the next nearest expiring contract, a 

generally unusual circumstance in the precious 

metals markets. 

28See http://www.sec.gov/Archives/edgar/data/ 

1459862/000093041310000057/c58962_424b3.htm, 

at page 7; see also http://www.sec.gov/Archives/ 

edgar/data/1460235/000093041310000056/ 

c58731_424b3.htm, at page 7. 

29The Prospectus for the Palladium Products 

states that ‘‘autocatalysts, automobile components 

that use palladium, accounted for approximately 

57% of the global demand in palladium in 2008.’’ 

See citation in footnote 26, at page 9. The 

Prospectus for the Platinum Products states that 

autocatalysts accounted for approximately 51% of 

the 2008 global demand for platinum. See citation 

in footnote 26, at page 9. 

30 In comparison, the CPM Group Gold and Silver 

Yearbooks for 2010 indicate that 12.5% of global 

gold demand was for industrial purposes in 2009 

(this includes electronics and dental/medical 

products), while 45.3% of global silver demand was 

for industrial purposes (this includes photography 

and electronics and batteries). Jewelry demand is 

not included in these figures. 

31The Johnson Matthey Platinum 2010 

publication indicates that 9.4% of global demand 

for platinum in 2009 was for investment purposes, 

while 8.0% of global demand for palladium was for 

investment. In contrast, the CPM Group Gold and 

Silver Yearbooks for 2010 indicate that net private 

investment in gold accounted for a larger 44.7% 

share of global gold demand in 2009 (this includes 

official coins, bullion and medallions), with net 

private investment accounting for around 30.0% of 

global silver demand in 2009 (this includes bullion 

and coins). 

system.23 By taking positions in options 

and futures on Commodity-Based ETFs 

traded on national securities exchanges, 

which can achieve the same investment 

objectives and are functionally the same 

as Commission-regulated products, 

market participants potentially avoid 

incurring any obligation to comply with 

the Commission’s rules and regulations 

(although the market participants do 

remain subject to the existing regulatory 

regime applicable to the securities 

markets). Beyond this concern, the 

Commission has examined, and 

continues to examine, the palladium 

and platinum markets relative to the 

gold and silver markets to review 

empirical findings which may justify a 

different regulatory resolution for the 

Palladium and Platinum Products as 

compared to the Commission’s 

approach to gold and silver ETF 

products under the Previous Orders 

(discussed further at section D, infra). 

At the same time, the Commission is 

seeking comment as to whether the 

trading and clearing (as options on 

securities or security futures) of options 

and futures on all or some Precious 

Metal Commodity-Based ETFs should 

be categorically exempted from the Act 

to the extent necessary to permit them 

to be so traded and cleared, whether 

absolutely or subject to conditions. 

Related to that issue, the Commission 

has been encouraged by market 

participants to adopt a ‘‘generic’’ 

approach for addressing the transactions 

in question on Precious Metal 

Commodity-Based ETFs as opposed to 

the existing process of performing a 

case-by-case basis review.24 This 

Release is intended to assist in the 

Commission’s consideration relating to 

a potential ‘‘generic’’ approach, and the 

Commission is seeking comments to 

that end. 

D. Empirical Observations: Palladium 

and Platinum v. Gold and Silver 

There are significant empirical 

differences across the precious metal 

markets which may support the 

Commission taking a different 

regulatory approach with respect to 

options and futures on CommodityBased ETFs holding palladium and 

platinum than it has previously taken 

with respect to options and futures on 

Commodity-Based ETFs holding gold 

and silver. 

Global palladium and platinum 

supplies are considerably smaller in 

volume than supplies of gold and silver, 

and come predominantly from mine 

production concentrated in a small 

number of countries, namely, South 

Africa and Russia (‘‘Producer 

Countries’’).25 These factors make 

palladium and platinum markets 

potentially more susceptible to tightness 

during periods of economic growth and 

subject to potential supply shocks from 

isolated events in either of the Producer 

Countries. Palladium and platinum 

futures markets consequently become 

more susceptible to price volatility that 

may result from relatively small changes 

in demand. These concerns were 

observed in January 2010 when the 

Palladium and Platinum Products were 

initially listed for trading on NYSE 

Arca, resulting in an apparent one-time 

increase in short-term demand for 

physical palladium and platinum,26 and 

the NYMEX palladium and platinum 

futures markets entered nearby 

backwardation.27 Indeed, the 

Prospectuses for the Palladium and 

Platinum Products, dated December 30, 

2009, and filed with the SEC, 

acknowledge that purchase of the shares 

may affect the prices of palladium and 

platinum, respectively, and may impact 

the supply of, and demand for, 

palladium and platinum, respectively.28

In addition to these distinguishing 

features, industrial demand constitutes 

a greater percentage of the total demand 

for both palladium and platinum 29 as 

compared to industrial demand as a 

percentage of total demand for gold and 

silver,30 and palladium and platinum 

have traditionally not been held for 

investment purposes to nearly the same 

extent as gold and silver.31 Accordingly, 

the Commission requests comment on 

whether these empirical differences 

suggest the need for a different 

regulatory approach for options and 

futures on the Palladium and Platinum 

Products, or any palladium or platinum 

Commodity-Based ETF, as compared to 

options and futures on the gold and 

silver Commodity-Based ETFs covered 

by the Previous Orders. 

Part II—Issues for Comment 

The Commission requests comment, 

taking into account all of the issues 

presented in this Release and 

mstockstill on DSKH9S0YB1PROD with NOTICES6

Federal Register / Vol. 75, No. 189 / Thursday, September 30, 2010 / Notices 60415 

32The Commission understands that certain 

position and exercise limits on Commodity-Based 

ETF options currently exist in the securities options 

markets. See, e.g., ISE Rules 412 and 414; see also 

NYSE Amex Rules 904 and 905. In addition, certain 

position limits and position accountability rules 

apply to security futures products listed and traded 

on OneChicago. See OneChicago Rule 414. 

33 44 U.S.C. 3507(d). 34 7 U.S.C. 19(a). 

considering the Commission’s future 

treatment of options and futures on 

Precious Metal Commodity-Based ETFs 

as required pursuant to the Dodd-Frank 

Act, on each of the following options for 

a proposed exemptive order: 

1. Is there any reason the Commission 

should not provide a categorical Section 

4(c) exemption for the trading and 

clearing of the transactions in question 

on gold and/or silver Commodity-Based 

ETFs? 

2. Are the palladium and platinum 

markets sufficiently distinct from the 

gold and silver markets to justify a 

different regulatory approach, for the 

purposes of a Section 4(c) exemption, 

for options and futures on the Palladium 

and Platinum Products (i.e. the specific 

ETF products identified in the OCC’s 

pending submission) as compared to 

that for options and futures on gold and 

silver Commodity-Based ETFs. 

3. More generally, should the 

Commission consider extending such a 

Section 4(c) exemption to options and 

futures on palladium and platinum 

Commodity-Based ETFs on a categorical 

basis (i.e. without respect to issuer)? 

4. If the Commission continues 

granting Section 4(c) exemptions, 

whether on an individual or categorical 

basis, when presented with a request to 

allow options and futures on 

Commodity-Based ETFs, should the 

Commission include additional 

conditions and requirements? For 

example, should the Commission 

consider imposing large trader reporting 

obligations, position limits,32 or other 

analogous requirements when 

exempting options and futures on 

Precious Metal Commodity-Based ETFs 

from the Commission’s jurisdiction? 

Related Matters 

A. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(‘‘PRA’’) 33 imposes certain requirements 

on federal agencies (including the 

Commission) in connection with their 

conducting or sponsoring any collection 

of information as defined by the PRA. 

At least some of the options for a 

proposed exemptive order described 

above, if issued with substantive 

reporting or similar conditions, would 

require a new collection of information 

from any entities that would be subject 

to the proposed order. 

B. Cost-Benefit Analysis 

In considering the options for a 

Section 4(c) exemption allowing the 

trading and clearing as options on 

securities any options on gold, silver, 

palladium, and platinum CommodityBased ETFs, and to clear and treat as 

security futures any futures contracts on 

gold, silver, palladium, and platinum 

Commodity-Based ETFs, Section 15(a) 

of the Act,34 as amended by Section 119 

of the Commodity Futures 

Modernization Act of 2000, requires the 

Commission to consider the costs and 

benefits of its action before issuing an 

order under the Act. By its terms, 

Section 15(a) as amended does not 

require the Commission to quantify the 

costs and benefits of an order or to 

determine whether the benefits of the 

order outweigh its costs. Rather, Section 

15(a) simply requires the Commission to 

‘‘consider the costs and benefits’’ of its 

action. 

Section 15(a) of the Act further 

specifies that costs and benefits shall be 

evaluated in light of five broad areas of 

market and public concern: protection 

of market participants and the public; 

efficiency, competitiveness, and 

financial integrity of futures markets; 

price discovery; sound risk management 

practices; and other public interest 

considerations. Accordingly, the 

Commission could in its discretion give 

greater weight to any one of the five 

enumerated areas and could in its 

discretion determine that, 

notwithstanding its costs, a particular 

order was necessary or appropriate to 

protect the public interest or to 

effectuate any of the provisions or to 

accomplish any of the purposes of the 

Act. 

The Commission is considering the 

costs and benefits of the options for a 

proposed order described above in light 

of the specific provisions of Section 

15(a) of the Act, as follows: 

1. Protection of market participants 

and the public. National securities 

exchanges, OCC, and their members 

who would intermediate the abovedescribed options and security futures 

on gold, silver, palladium, and platinum 

Commodity-Based ETFs are subject to 

extensive regulatory oversight; however, 

this regulatory oversight in the 

securities markets does not completely 

parallel the oversight programs seen in 

CFTC regulated markets. 

2. Efficiency, competition, and 

financial integrity. The options for a 

proposed exemption may enhance 

market efficiency and competition since 

they could encourage potential trading 

of options and security futures on the 

gold, silver, palladium, and platinum 

Commodity-Based ETFs through modes 

other than those normally applicable; 

that is, designated contract markets or 

derivatives transaction execution 

facilities. Financial integrity will not be 

affected since the options and security 

futures on gold, silver, palladium, and 

platinum Commodity-Based ETFs will 

be cleared by the OCC, a DCO and SECregistered clearing agency, and 

intermediated by SEC-registered brokerdealers. 

3. Price discovery. Price discovery 

may be enhanced through market 

competition. 

4. Sound risk management practices. 

The options and security futures on the 

gold, silver, palladium, and platinum 

Commodity-Based ETFs will be subject 

to OCC’s current risk-management 

practices including its margining 

system. 

5. Other public interest 

considerations. The options for a 

proposed exemption may encourage 

development of derivative products 

through market competition without 

unnecessary regulatory burden. 

After considering these factors, the 

Commission has determined to seek 

comment on the matters discussed 

above. The Commission invites public 

comment on its application of the costbenefit provision. 

* * * * * 

Issued in Washington, DC, on September 

24, 2010 by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

[FR Doc. 2010–24586 Filed 9–29–10; 8:45 am] 

BILLING CODE P 

DEPARTMENT OF DEFENSE 

Office of the Secretary 

[Docket ID: DoD–2010–OS–0129] 

Proposed Collection; Comment 

Request 

AGENCY: Office of the Under Secretary of 

Defense (Personnel and Readiness), 

DoD. 

ACTION: Notice. 

SUMMARY: In compliance with Section 

3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995, the Office of the 

Under Secretary of Defense (Personnel 

and Readiness) announces the following 

proposed extension of a public 

information collection and seeks public 

comment on the provisions thereof. 

mstockstill on DSKH9S0YB1PROD with NOTICES6