Federal Register / Vol. 77, No. 37 / Friday, February 24, 2012 / Notices 11177 

9 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 66077 

(January 3, 2012), 77 FR 829 (‘‘Notice’’). 

4Amendment No. 1 made a technical correction 

to the Exhibit 3. Amendment No. 1 is not subject 

to notice and comment because it is technical in 

nature and does not materially alter the substance 

of the proposed rule change or raise any novel 

regulatory issues. 

5FLEX options are flexible exchange-traded 

index, equity, or currency option contracts that 

provide investors the ability to customize basic 

option features including size, expiration date, 

exercise style, and certain exercise prices. FLEX 

index options may have expiration dates within five 

years. See Exchange Rules 1079 and 1101A. 

6LEAPS or Long Term Equity Anticipation 

Securities are long term options that generally 

expire from twelve to thirty-nine months from the 

time they are listed. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments relating to the 

proposed rule change have not yet been 

solicited or received. DTC will notify 

the Commission of any written 

comments received by DTC. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change was filed 

pursuant to Section 19(b)(3)(A) of the 

Act and paragraph (f)(4) of Rule 19b–4 

and therefore, became effective on 

filing. At any time within sixty days of 

the filing of such 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 email to rulecomments@sec.gov. Please include File 

Number SR–DTC–2012–01 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–DTC–2012–01. This file 

number should be included on the 

subject line if email 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 such filing 

also will be available for inspection and 

copying at DTC’s principal office and on 

DTC’s Web site at www.dtc.org. 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–DTC–2012–01 and should 

be submitted on or before March 16, 

2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–4279 Filed 2–23–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66420; File No. SR–Phlx2011–179] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Order 

Granting Approval of a Proposed Rule 

Change, as Modified by Amendment 

No. 1 Thereto, Relating to the Listing 

and Trading of MSCI EM Index Options 

February 17, 2012. 

I. Introduction 

On December 21, 2011, NASDAQ 

OMX PHLX LLC (the ‘‘Exchange’’ or 

‘‘Phlx’’) filed with the Securities and 

Exchange Commission (the 

‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

amend certain of its rules to provide for 

the listing and trading of options on the 

MSCI EM Index. The proposed rule 

change was published for comment in 

the Federal Register on January 6, 

2012.3 On January 11, 2012, the 

Exchange filed Amendment No. 1 to the 

proposed rule change.4 The Commission 

received no comment letters on the 

proposed rule change. This order 

approves the proposed rule change, as 

modified by Amendment No. 1 thereto. 

II. Description 

The proposed rule change would 

amend Phlx Rules 1079 (FLEX Index, 

Equity and Currency Options), 1009A 

(Designation of the Index) and 1101A 

(Terms of Option Contracts) to list and 

trade P.M. cash-settled, European-style 

options, including FLEX 5 options and 

LEAPS,6 on the MSCI EM Index, which 

is described below. The proposal would 

also create new Phlx Rule 1108A, 

entitled ‘‘MSCI EM Index,’’ which 

would provide additional detailed 

information pertaining to the index as 

required by the licensor including, but 

not limited to, liability and other 

representations on the part of MSCI Inc. 

(‘‘MSCI’’), which maintains the index. 

As described by the Exchange, the 

MSCI EM Index is a free float-adjusted 

market capitalization index consisting 

of large and midcap component 

securities from countries classified by 

MSCI as ‘‘emerging markets,’’ and is 

designed to measure equity market 

performance of emerging markets. The 

index consists of component securities 

from the following 21 emerging market 

countries: Brazil, Chile, China, 

Colombia, Czech Republic, Egypt, 

Hungary, India, Indonesia, Korea, 

Malaysia, Mexico, Morocco, Peru, 

Philippines, Poland, Russia, South 

Africa, Taiwan, Thailand, and Turkey. 

As further described by the Exchange, 

the MSCI EM Index is calculated in U.S. 

Dollars on a real time basis from the 

open of the first market on which the 

components are traded to the close of 

the last market on which the 

components are traded. The level of the 

index reflects the free float-adjusted 

market value of the component stocks 

relative to a particular base date, and the 

methodology used to calculate the value 

of the index is similar to the 

methodology used to calculate the value 

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11178 Federal Register / Vol. 77, No. 37 / Friday, February 24, 2012 / Notices 

7 Details regarding the methodology for 

calculating the MSCI EM Index can be found in the 

Notice, supra note 3, and at http://www.msci.com/ 

eqb/methodology/meth_docs/ 

MSCI_May11_GIMIMethod.pdf. 

8According to the Exchange, static data regarding 

the MSCI EM Index is distributed daily to clients 

through MSCI as well as through major quotation 

vendors, including Bloomberg L.P. (‘‘Bloomberg’’), 

FactSet Research Systems, Inc. (‘‘FactSet’’) and 

Thomson Reuters (‘‘Reuters’’). Real time data is 

distributed at least every 15 seconds using MSCI’s 

real-time calculation engine to Reuters, Bloomberg, 

SIX Telekurs and FactSet. 

9A broad-based index is defined in Exchange 

Rule 1000A(b)(11) as an index designed to be 

representative of a stock market as a whole or of a 

range of companies in unrelated industries. 

10This provision is an exception to Exchange 

Rule 1009A(a), which provides generally that the 

listing of a class of index options on a new 

underlying index will be treated by the Exchange 

as a proposed rule change subject to filing with and 

approved by the Commission under Section 19(b) 

of the Act. 

11The exercise limit would also be 25,000 

contracts as per Exchange Rule 1002A. 

12See Exchange Rule 721. For additional 

proposed requirements for options on the MSCI EM 

Index, including strike price intervals, minimum 

tick size, and series openings, see Notice, supra 

note 3. 

13See generally Exchange Rules 1000A through 

1107A (Rules Applicable to Trading of Options on 

Indices) and Exchange Rules 1000 through 1094 

(Rules Applicable to Trading of Options on Stocks, 

Exchange-Traded Fund Shares and Foreign 

Currencies). 

14See Exchange Rules 721 (Proper and Adequate 

Margin) and 1047A (Trading Rotations, Halts or 

Reopenings). 

15 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. 

16 15 U.S.C. 78f(b)(5). 

capitalization weighted indexes.7 As of 

December 31, 1987, when the MSCI EM 

Index was launched, its base index 

value was 100. On June 1, 2011, the 

index value was 1166.72.8

The MSCI EM Index is monitored and 

maintained by MSCI. Adjustments to 

the MSCI EM Index are made on a daily 

basis with respect to corporate events 

and dividends. The index is generally 

updated on a quarterly basis to reflect 

amendments to shares outstanding and 

free float. Full index reviews are 

conducted on a semi-annual basis for 

purposes of rebalancing the index. 

Options on the MSCI EM Index, as 

introduced by the proposed rule change, 

would be European-style and P.M. cashsettled. The settlement value for 

expiring options would be based on the 

closing prices of the component stocks 

on the last trading day prior to 

expiration. The expiration date would 

be the Saturday following the third 

Friday of the expiration month. The 

Options Clearing Corporation would be 

the issuer and guarantor. 

Phlx Rule 1009A(d) provides that the 

Exchange may trade options on a broadbased index 9 pursuant to Rule 19b–4(e) 

under the Act, when certain conditions 

are satisfied.10 The MSCI EM Index is a 

broad-based index. However, it does not 

meet all the conditions of Rule 

1009A(d). The proposed rule change 

would establish listing standards that 

are specific to MSCI EM Index options, 

to be set forth in new Rule 1009A(g). 

Specifically, proposed Rule 

1009A(g)(i) would provide that the 

Exchange may trade options on the 

MSCI EM Index if each of the following 

conditions is satisfied: 

(1) The index is broad-based; 

(2) Options on the index are 

designated as P.M.-settled index 

options; 

(3) The index is capitalizationweighted, price-weighted, modified 

capitalization-weighted or equal dollarweighted; 

(4) The index consists of 500 or more 

component securities; 

(5) All the component securities of the 

index have a market capitalization of 

greater than $100 million; 

(6) No single component security 

accounts for more than 15% of the 

weight of the index, and the five highest 

weighted component securities in the 

index do not, in the aggregate, account 

for more than 50% of the weight of the 

index; 

(7) Non-U.S. component securities 

(stocks or ADRs) that are not subject to 

comprehensive surveillance agreements 

do not, in the aggregate, represent more 

than 22.5% of the weight of the index; 

(8) The current index value is widely 

disseminated at least once every 15 

seconds by one or more major market 

data vendors during the time options on 

the index are traded on the Exchange; 

(9) The Exchange reasonably believes 

it has adequate system capacity to 

support the trading of options on the 

index, based on a calculation of the 

Exchange’s current Independent System 

Capacity Advisor (ISCA) allocation and 

the number of new messages per second 

expected to be generated by options on 

such index; and 

(10) The Exchange has written 

procedures in place for the surveillance 

of trading of options on the index. 

After the initial listing of options on 

the MSCI EM Index under the above 

conditions, the following maintenance 

standards, as set forth in proposed Rule 

1009A(g)(ii), would apply: The 

requirements set forth in proposed Rule 

1009A(g)(i)(1), (2), (3), (4), (7), (8), (9), 

and (10) must continue to be satisfied. 

The requirements set forth in proposed 

Rule 1009A(g)(i)(5) and (6) must be 

satisfied only as of the first day of 

January and July in each year. In 

addition, the total number of component 

securities in the index could not 

increase or decrease by more than 35% 

from the number of component 

securities in the index at the time of its 

initial listing. 

The Exchange proposed to apply 

position limits of 25,000 contracts on 

the same side of the market to options 

on the MSCI EM Index.11 All position 

limit hedge exemptions would apply. In 

addition, the Exchange proposed to 

amend Rule 1079(d)(1) to note that, with 

respect to FLEX options on the MSCI 

EM index, the same number of 

contracts, 25,000, would apply with 

respect to the position limit. The 

Exchange also proposed to apply 

existing index option margin 

requirements for the purchase and sale 

of options on the MSCI EM Index.12

Further, as proposed, Exchange rules 

that apply to the trading of options on 

broad-based indexes also would apply 

to options on the MSCI EM Index.13

This includes, among others, 

Exchange rules governing margin 

requirements and trading halt 

procedures for index options.14

Finally, the Exchange proposed to add 

Rule 1108A, entitled ‘‘MSCI EM Index,’’ 

to provide additional detailed 

information pertaining to the index as 

required by the licensor, including, but 

not limited to, liability and other 

representations on the part of MSCI. 

III. Discussion and Commission 

Findings 

The Commission finds that the 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange.15 Specifically, the 

Commission finds that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act,16 which requires, 

among other things, that the rules of a 

national securities exchange be 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, 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. 

The Commission believes that the 

listing and trading of options on the 

MSCI EM Index will broaden trading 

and hedging opportunities for investors 

by creating a new options instrument 

based on an index designed to measure 

the equity market performance of 

emerging markets. Because the MSCI 

EM Index is a broad-based index 

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Federal Register / Vol. 77, No. 37 / Friday, February 24, 2012 / Notices 11179 

17 15 U.S.C. 78f(b)(1). 

18See generally Exchange Rules 1000A through 

1107A (Rules Applicable to Trading of Options on 

Indices) and Exchange Rules 1000 through 1094 

(Rules Applicable to Trading of Options on Stocks, 

Exchange-Traded Fund Shares and Foreign 

Currencies). 

19See Notice, supra note 3 and Exchange Rules 

1024–1029. See also supra notes 13 and 14. 

20 15 U.S.C. 78s(b)(2). 

21 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(2). 

capitalized stocks, the trading of options 

on the MSCI EM Index does not raise 

unique regulatory concerns. The 

Commission believes that the listing 

standards, which are created 

specifically and exclusively for the 

MSCI EM Index, are consistent with the 

Act, for the reasons discussed below. 

The Commission notes that proposed 

Rule 1009A(g) would require that the 

MSCI EM Index consist of 500 or more 

component securities. The component 

securities of the MSCI EM Index are 

listed and traded on markets spread 

over 21 different countries. Further, for 

options on the MSCI EM Index to trade, 

each of the minimum of 500 component 

securities would need to have a market 

capitalization of greater than $100 

million. Moreover, the Commission 

notes that, according to the Exchange, 

the MSCI EM Index is comprised of 

more than 800 components, all of which 

must meet the market capitalization 

requirement to permit an option on the 

index to begin trading. 

The Commission notes that the 

proposed listing standards for options 

on the MSCI EM Index would not 

permit any single security to comprise 

more than 15% of the weight of the 

index, and would not permit a group of 

five securities to comprise more than 

50% of the weight of the index. The 

Commission believes that, in view of the 

requirement on the number of securities 

in the index, the number of countries 

represented in the index, and the market 

capitalization, this concentration 

standard is consistent with the Act. 

Further, the Exchange stated that, of the 

more than 800 components that 

comprise the MSCI EM Index, no single 

component comprises more than 5% of 

the index. 

The Exchange has represented that it 

has an adequate surveillance program in 

place for options on the MSCI EM 

Index, and intends to apply the same 

procedures for surveillance that it 

applies to its other index options. The 

Exchange also is a member of the 

Intermarket Surveillance Group and an 

affiliate member of the International 

Organization of Securities Commissions, 

and has entered into various 

Information Sharing Agreements and/or 

Memoranda of Understandings with 

various stock exchanges. 

Under the proposed rule change, nonU.S. component securities of the MSCI 

EM Index that are not subject to 

comprehensive surveillance agreements 

will not, in the aggregate, represent 

more than 22.5% of the weight of the 

index. The Commission expects the 

Exchange to continue to work to secure 

comprehensive surveillance agreements 

with exchanges on which the 

component securities of the MSCI EM 

Index trade, but with which the 

Exchange currently does not have 

comprehensive surveillance agreements 

in place. 

The proposed listing standards 

require the current value of the MSCI 

EM Index to be widely disseminated at 

least once every 15 seconds by one or 

more major market data vendors during 

the time options on the index are traded 

on the Exchange. Further, the standards 

require that the Exchange have adequate 

system capacity to support the trading 

of options on the MSCI EM Index. The 

Exchange stated that these requirements 

will be met. 

As a national securities exchange, the 

Exchange is required, under Section 

6(b)(1) of the Act,17 to enforce 

compliance by its members, and persons 

associated with its members, with the 

provisions of the Act, Commission rules 

and regulations thereunder, and its own 

rules. In this regard, the Commission 

notes that Exchange rules that apply to 

the trading of options on broad-based 

indexes would apply to options on the 

MSCI EM Index.18 In addition, the 

Exchange has stated that options on the 

MSCI EM Index would be subject to the 

same rules that govern all Exchange 

index options, including rules that are 

designed to protect public customer 

trading.19

The Commission further believes that 

the Exchange’s proposed position and 

exercise limits, strike price intervals, 

minimum tick size, series openings, and 

other aspects of the proposed rule 

change are appropriate and consistent 

with the Act. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,20 that the 

proposed rule change (SR–Phlx–2011– 

179), as modified by Amendment No. 1 

thereto, be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.21

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–4281 Filed 2–23–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66422; File No. SR–BATS– 

2012–010] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Related to Fees for Use 

of BATS Exchange, Inc. 

February 17, 2012. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b-4 thereunder,2

notice is hereby given that on February 

8, 2012, BATS Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BATS’’) 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 prepared 

by the Exchange. The Exchange has 

designated the proposed rule change as 

one establishing or changing a due, fee, 

or other charge imposed by the 

Exchange under Section 19(b)(3)(A)(ii) 

of the Act3 and Rule 19b–4(f)(2) 

thereunder,4 which renders the 

proposed rule change effective upon 

filing with the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to institute a 

fee change applicable to securities listed 

on the Exchange. Changes to the 

Exchange’s fees pursuant to this 

proposal will be effective upon filing. 

The text of the proposed rule change 

is available at the Exchange’s Web site 

at http://www.batstrading.com, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

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 


srobinson on DSK4SPTVN1PROD with NOTICES