16072 Federal Register / Vol. 80, No. 58 / Thursday, March 26, 2015 / Notices 

82 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The Exchange, The NASDAQ Stock Market LLC 

(‘‘NASDAQ’’), and NASDAQ OMX BX, Inc. (‘‘BX’’) 

are self-regulatory organizations (‘‘SROs’’) that are 

wholly owned subsidiaries of The NASDAQ OMX 

Group, Inc. (the ‘‘Group’’). 

4Surveillance agreements are also referred to in 

Exchange rules as ‘‘surveillance sharing 

agreements’’ or ‘‘comprehensive surveillance 

sharing agreements’’ (‘‘CSSA’’). See, e.g., Rules 1009 

and 803. 

5ETFs are also referred to in Exchange rules as 

‘‘Fund Shares.’’ See, e.g., Rules 1009 and 1009A 

[sic]. 

6NASDAQ is the principal exchange within the 

Group for listing ETFs. NASDAQ has generic listing 

standards for PDRs and IFSs. See NASDAQ Rule 

5705(b)(3)(A)(ii) regarding IFSs and 5705(a)(3)(A)(ii) 

regarding PDRs (IFSs and PDRs are together known 

as ETFs in NASDAQ Rule 5705). See also NYSE 

MKT Rule 1000 Commentary .03(a)(B); NYSE Arca 

Equities Rule 5.2(j)(3) Commentary .01(a)(B); and 

BATS Rule 14.11(b)(3)(A)(ii). 

7 17 CFR 240.19b–4(e). 

8 17 CFR 240.19b–4(c)(1). 

9 15 U.S.C. 78s(b). 

10When relying on Rule 19b–4(e), the SRO must 

submit Form 19b–4(e) to the Commission within 

five business days after the SRO begins trading the 

new derivative securities products. See Securities 

Exchange Act Release No. 40761 (December 8, 

1998), 63 FR 70952 (December 22, 1998). 

11See NASDAQ Rule 5705(a)(3)(A)(ii) and 

(b)(3)(A)(ii); NYSE MKT Rule 1000, Commentary 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2015–024. 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 

10:00 a.m. and 3:00 p.m. Copies of such 

filing also will be available for 

inspection and copying at the principal 

offices 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– 

NASDAQ–2015–024, and should be 

submitted on or before April 16, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.82

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–06891 Filed 3–25–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74553; File No. SR–Phlx– 

2015–27] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Relating to 

Surveillance Agreements 

March 20, 2015. 

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 March 

16, 2015, NASDAQ OMX PHLX LLC 

(‘‘Phlx’’ or ‘‘Exchange’’) 3 filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I and 

II below, which Items have been 

prepared by the Exchange. 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 amend 

Rule 1009 (Criteria for Underlying 

Securities) to allow the listing of options 

overlying Exchange-Traded Fund Shares 

(‘‘ETFs’’) that are listed pursuant to 

generic listing standards on equities 

exchanges for series of portfolio 

depositary receipts (‘‘PDRs’’) and index 

fund shares (‘‘IFSs’’) based on 

international or global indexes, 

pursuant to which a comprehensive 

surveillance agreement 4 is not required. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://www.nasdaqtrader.com/

micro.aspx?id=PHLXRulefilings, 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 

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 

Commentary .06 to Rule 1009 to allow 

the listing of options overlying ETFs 5

that are listed pursuant to generic listing 

standards on equities exchanges for 

series of PDRs and IFSs based on 

international or global indexes under 

which a CSSA is not required.6 Adding 

proposed new Commentary .06(b)(i) to 

Rule 1009 will enable the Exchange to 

list and trade options on ETFs without 

a CSSA provided that the underlying 

ETF is listed on an equities exchange 

pursuant to the generic listings 

standards that do not require a CSSA 

pursuant to Rule 19b–4(e) of the 

Exchange Act.7

Rule 19b–4(e) provides that the listing 

and trading of a new derivative 

securities product by an SRO shall not 

be deemed a proposed rule change, 

pursuant to paragraph (c)(l) of Rule 19b– 

4 8 if the Commission has approved, 

pursuant to Section 19(b) of the Act,9

the SRO’s trading rules, procedures and 

listing standards for the product class 

that would include the new derivatives 

securities product, and the SRO has a 

surveillance program for the product 

class.10 This proposal allows the 

Exchange to list and trade options on 

ETFs based on international or global 

indexes that meet the generic listing 

standards.11

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Federal Register / Vol. 80, No. 58 / Thursday, March 26, 2015 / Notices 16073 

.03(a)(B); NYSE Arca Equities Rule 5.20)(3) [sic], 

Commentary .01(a)(B); and BATS Rule 

14.11(b)(3)(A)(ii). 12See Securities Exchange Act Release No. 43921 

(February 2, 2001), 66 FR 9739 (February 9, 2001) 

(SR–Phlx–2000–107) (notice of filing and approval 

order regarding trading of options on ETFs with 

surveillance agreements) (the ‘‘ETF approval 

order’’). At about the same time, the Exchange 

instituted surveillance agreement requirements for 

options on Trust Issued Receipts (‘‘TIRs’’), and 

thereafter other products. See Securities Exchange 

Act Release No. 44709 (August 16, 2001), 66 FR 

44194 (August 22, 2001) (SR–Phlx–2001–71) (notice 

of filing and approval order regarding trading of 

options on TIRs with surveillance agreements). 

Other exchanges have similar requirements. The 

changes proposed herein relate only to surveillance 

agreements for options on global or international 

ETFs. 

13Moreover, as noted below the surveillance 

agreement requirement is present for the derivative 

options on ETFs but not for the underlying ETFs. 14See Commentary .06(b)(i)–(iii) to Rule 1009, 

which is re-numbered as Commentary .06(b)(ii)(A)– 

(C) to Rule 1009. 

15See Securities Exchange Act Release No. 43921 

(February 2, 2001), 66 FR 9739 (February 9, 2001) 

(SR–Phlx–2000–107) (ETF approval order). 

16http://www.icifactbook.org/fb_ch3.html. 

17These can be from intraday exposure (e.g., 

using Daily S&P 500 Bear 3x Shares (SPXS)) to longterm 401(k) or retirement fund exposure (e.g., using 

SPY). 

18http://www.icifactbook.org/fb_ch3.html. 

19ETFs and ETPs listed in the United States 

gathered $24.6 billion USD in net new assets in 

June 2014 which, when combined with positive 

market performance, pushed the ETF/ETP industry 

in the United States to a new record high of $1.86 

trillion USD invested in 1,613 ETFs/ETPs, from 58 

providers listed on 3 exchanges. And according to 

ETFGI, an independent ETF/ETP research and 

consultancy firm in the U.K., ETFs and ETPs listed 

globally reached $2.64 trillion USD in assets, a new 

record high, at the end of Q2 2014. http://

www.mondovisione.com/media-and-resources/

news/according-to-etfgi-etfs-and-etps-listedglobally-reached-us264-trillion-in-as/. 

20While the surveillance agreement requirement 

for options on ETFs found in Commentary .06 to 

Rule 1009 (see note 14 and related text) has resulted 

in significant negative implications for market 

participants, there is no such surveillance 

agreement requirement for the underlying ETFs. In 

particular, when looking to the rules of NASDAQ, 

the primary ETF listing venue in the Group, 

NASDAQ Rules 5705 regarding ETFs and 5735 

regarding Managed Fund Shares (‘‘MFSs’’) have no 

explicit requirements concerning surveillance 

agreements for regularly listed (non-generic) ETFs 

and MFSs, and simply state that FINRA will 

implement written surveillance procedures. Section 

19(b)(2) filings regarding ETFs and MFSs typically 

indicate that the Exchange may obtain information 

regarding trading in the shares from FINRA and 

markets and other entities that are members of the 

Intermarket Surveillance Group (‘‘ISG’’), which 

includes securities and futures exchanges, or with 

which the Exchange has in place a surveillance 

agreement (which is not required by rule). 

Regarding ETFs and MFSs listed pursuant to 

generic (19b-4(e)) standards and reviewed and 

approved for trading under Section 19(b)(2) of the 

Act, Rules 5705 and 5735 [sic] simply note that the 

Commission’s approval order may reference 

surveillance sharing agreements with respect to 

non-U.S. component stocks. 

The Surveillance Agreement 

Requirement for Options on ExchangeTraded Funds 

The surveillance agreement 

requirement (also known as the 

‘‘requirement’’ or ‘‘regime’’) was 

initially put into effect for options on 

ETFs well over a decade ago but has 

proven to have anti-competitive effects 

that are detrimental to investors.12

Specifically, the requirement limits the 

investing public’s ability to hedge risk 

or engage in options strategies that may 

be afforded to other investors in 

domestic securities.13

The Exchange allows for the listing 

and trading of options on ETFs. 

Commentary .06 to Rule 1009 provides 

the listings standards for options on 

ETFs, which includes [sic] ETFs with 

non-U.S. component securities, such as 

ETFs based on international or global 

indexes. Currently, Commentary .06 to 

Rule 1009 regarding options on ETFs 

has a three-level surveillance agreement 

requirement (reproduced in relevant 

part): 

(i) Whether any non-U.S. component 

stocks on which the Fund Shares are 

based that are not subject to 

comprehensive surveillance agreements 

do not in the aggregate represent more 

than 50% of the weight of the index or 

portfolio; 

(ii) stocks for which the primary 

market is in any one country that is not 

subject to a comprehensive surveillance 

agreement do not represent 20% or 

more of the weight of the index; and 

(iii) stocks for which the primary 

market is in any two countries that are 

not subject to comprehensive 

surveillance agreements do not 

represent 33% or more of the weight of 

the index.14

The Exchange proposes to modify the 

surveillance agreement requirement for 

options on ETFs that are listed pursuant 

to generic listing standards for series of 

PDRs and IFSs, based on international 

or global indexes—for which case a 

comprehensive surveillance agreement 

is not required. 

The surveillance agreement 

requirement was instituted in 2001 

when ETFs were, comparatively 

speaking, in a developmental state.15

The first ETF introduced in 1993 was a 

broad-based domestic equity fund 

tracking the S&P 500 index. The 

development of ETF products was very 

limited during the first decade of their 

existence, such that at the end of 2001, 

there was a total of only 102 ETFs listed 

on U.S. markets. Since 2001, however, 

the ETF market has matured 

tremendously and grown exponentially, 

such that at the end of 2012 there were 

a total of 1,194 listed ETFs.16 Many of 

these are very well known, highly 

traded and liquid products, such as, for 

example, SPDR S&P 500 Trust ETF 

(SPY), iShares MSCI Emerging Markets 

ETF (EEM), and PowerShares QQQ 

Trust, Series 1 ETF (QQQQ) [sic], that 

market participants from institutional to 

retail and public investors have been 

using for trading, hedging, and investing 

purposes with varying timelines.17 The 

ETF market is one of the most highlydeveloped, sophisticated markets that 

provide traders and investors the 

opportunity to access practically all 

industries and enterprises. In 2012 

investor demand for ETFs in all asset 

classes increased substantially. And in 

2011 the demand for global and 

international equity ETFs, to which the 

requirement applies, more than 

doubled.18 The Exchange believes that 

the surveillance agreement requirement 

no longer serves a necessary (or 

indispensable) function in today’s 

highly developed ETF market,19 and 

actually creates a dynamic that 

negatively impacts the number of 

markets that can competitively trade 

ETF option products, to the detriment of 

market participants. 

The current surveillance requirement 

has, at times, resulted in the investing 

public having to forego the opportunity 

to hedge risk or engage in other listed 

options strategies in a competitive 

environment. ETFs may lack active 

options contracts that would be more 

likely to develop if multiple exchanges 

could compete to offer and promote 

them. For example, an investor in the 

iShare [sic] MSCI Indonesia ETF (EIDO) 

is not permitted to sell call options or 

purchase protective puts simply because 

the Exchange cannot obtain a 

surveillance agreement with Bursa Efek 

Indonesia. However, an investor in 

iShare [sic] MSCI Emerging Markets 

Fund (EEM) is afforded the right to 

engage in listed options trading to hedge 

risk or execute other beneficial options 

strategies. Both underlying exchangetraded funds, EIDO and EEM, are listed 

for trading in the U.S., subject to 

constant regulatory scrutiny, and 

permitted to be purchased and sold via 

registered broker/dealers, yet, options 

can now be offered only on EEM. The 

Exchange believes this disparate 

treatment between investors of foreignbased instruments, especially between 

those that buy and sell options contracts 

on ETFs, which currently require 

surveillance agreements, as opposed to 

those that buy and sell shares of the 

underlying ETFs, which currently do 

not have the same onerous surveillance 

agreement requirement that ETF options 

have,20 is not in the best interest. The 

Exchange therefore proposes to establish 

that options on generically-listed global 

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16074 Federal Register / Vol. 80, No. 58 / Thursday, March 26, 2015 / Notices 

21For purposes of brevity, these other 

requirements are not set forth, but can be found in 

Commentary .06 to Rule 1009. 

22 17 CFR 240.19b–4(e). 

23See Securities Exchange Act Release No. 54739 

(November 9, 2006), 71 FR 66993 (November 17, 

2006) (SR–Amex–2006–78) (initial order relating to 

generic listing standards for ETFs based on 

international or global indexes). See also NASDAQ 

Rule 5705(a)(3)(A)(ii) and (b)(3)(A)(ii). 

24See, e.g., Securities Exchange Act Release Nos. 

57013 (December 20, 2007), 72 FR 73923 (December 

28, 2007) (SR–CBOE–2007–140) (approval order to 

list and trade options on iShares MSCI Mexico 

Index Fund, when CBOE did not have in place a 

surveillance agreement with the Bolsa Mexicana de 

Valores (the ‘‘Bolsa’’)); 57014 (December 20, 2007), 

72 FR 73934 (December 28, 2007) (SR–ISE–2007– 

111) (approval order to list and trade options on 

iShares MSCI Mexico Index Fund, when ISE did 

not have in place a surveillance agreement with the 

Bolsa); 56778 (November 9, 2007), 72 FR 65113 

(November 19, 2007) (SR–AMEX–2007–100) 

(approval order to list and trade options on iShares 

MSCI Mexico Index Fund, when AMEX did not 

have in place a surveillance agreement with the 

Bolsa); and 55648 (April 19, 2007), 72 FR 20902 

(April 26, 2007) (SR–AMEX–2007–09) (approval 

order to list and trade options on Vanguard 

Emerging Markets ETF, when AMEX did not have 

in place a surveillance agreement with the Bolsa). 

See also Securities Exchange Act Release Nos. 

50189 (August 12, 2004), 69 FR 51723 (August 20, 

2004) (SR–AMEX–2001–05) [sic] (approving the 

listing and trading of certain Vanguard International 

Equity Index Funds); and 44700 (August 14, 2001), 

66 FR 43927 (August 21, 2001) (SR–2001–34) [sic] 

(approving the listing and trading of series of the 

iShares Trust based on foreign stock indexes). 

25 17 CFR 240.19b–4(e). 

26 Id. 

27 15 U.S.C. 78s(b)(2). 

28Rule 1009A has, for example, weighting, 

capitalization, trading volume, and minimum 

number of components standards for listing options 

on narrow-based and broad-based indexes. For a 

definition of broad-based index (market index) and 

narrow-based index (industry index), see Rule 

1000A(b)(11) and (12), respectively. 

29NASDAQ Rule 5705(b)(3)(A)(ii) regarding IFSs, 

for example, has the following requirements 

(reproduced in relevant part): a. Component stocks 

(excluding Derivative Securities Products) that in 

the aggregate account for at least 90% of the weight 

of the index or portfolio (excluding Derivative 

Securities Products) each shall have a minimum 

market value of at least $100 million; b. component 

stocks (excluding Derivative Securities Products) 

that in the aggregate account for at least 70% of the 

weight of the index or portfolio (excluding 

Derivative Securities Products) each shall have a 

minimum worldwide monthly trading volume of at 

least 250,000 shares, or minimum global notional 

volume traded per month of $25,000,000, averaged 

over the last six months; c. the most heavily 

weighted component stock (excluding Derivative 

Securities Products) shall not exceed 25% of the 

weight of the index or portfolio, and, to the extent 

applicable, the five most heavily weighted 

component stocks (excluding Derivative Securities 

Products) shall not exceed 60% of the weight of the 

index or portfolio; d. the index or portfolio shall 

include a minimum of 20 component stocks; 

provided, however, that there shall be no minimum 

number of component stocks if either one or more 

series of Index Fund Shares or Portfolio Depositary 

Receipts constitute, at least in part, components 

underlying a series of Index Fund Shares, or one or 

more series of Derivative Securities Products 

account for 100% of the weight of the index or 

portfolio; and e. each U.S. Component Stock shall 

be listed on a national securities exchange and shall 

be an NMS Stock as defined in Rule 600 of 

Regulation NMS under the Act, and each Non-U.S. 

Component Stock shall be listed and traded on an 

exchange that has last-sale reporting. NASDAQ 

Rule 5705(a)(3)(A)(ii) has similar standards, but 

tailored for PDRs. 

or international ETFs would not require 

surveillance agreements for listing. 

The current surveillance agreement 

requirements, as well as all other 

requirements to list options on ETFs,21

are not affected by this proposal and 

will continue to remain in place for 

options on ETFs that do not meet 

generic listing standards on equities 

exchanges for ETFs based on 

international and global indexes. 

Generic Listing Standards for ExchangeTraded Funds 

The Exchange notes that the 

Commission has previously approved 

generic listing standards pursuant to 

Rule 19b–4(e) of the Exchange Act 22 for 

ETFs based on indexes that consist of 

stocks listed on U.S. exchanges 

including NASDAQ, the ETF listing 

exchange within the Group.23 In 

general, the criteria for the underlying 

component securities in the 

international and global indexes are 

similar to those for the domestic 

indexes, but with modifications as 

appropriate for the issues and risks 

associated with non-U.S. securities. 

In addition, the Commission has 

previously approved proposals for the 

listing and trading of options on ETFs 

based on international indexes as well 

as global indexes (e.g., based on nonU.S. and U.S. component stocks).24 In 

approving ETFs for equities exchange 

trading, the Commission thoroughly 

considered the structure of the ETFs, 

their usefulness to investors and to the 

markets, and SRO rules that govern their 

trading. The Exchange believes that 

allowing the listing of options overlying 

ETFs that are listed pursuant to the 

generic listing standards on equities 

exchanges for ETFs based on 

international and global indexes and 

applying Rule 19b–4(e) 25 should fulfill 

the intended objective of that rule by 

allowing options on those ETFs that 

have satisfied the generic listing 

standards to commence trading, without 

the need for the public comment period 

and Commission approval. The 

proposed rule has the potential to 

reduce the time frame for bringing 

options on ETFs to market, thereby 

reducing the burdens on issuers and 

other market participants. The failure of 

a particular ETF to comply with the 

generic listing standards under Rule 

19b–4(e) 26 would not, however, 

preclude the Exchange from submitting 

a separate filing pursuant to Section 

19(b)(2),27 requesting Commission 

approval to list and trade options on a 

particular ETF. Moreover, the Exchange 

notes that the generic standards such as 

those in proposed Commentary .06(b)(i) 

to Rule 1009 are not new in the options 

world, and have been used extensively 

for listing options on narrow-based and 

broad-based indexes.28

Requirements for Listing and Trading 

Options Overlying ETFs Based on 

International and Global Indexes 

Options on ETFs listed pursuant to 

these generic standards for international 

and global indexes would be traded, in 

all other respects, under the Exchange’s 

existing trading rules and procedures 

that apply to options on ETFs and 

would be covered under the Exchange’s 

surveillance program for options on 

ETFs. 

Pursuant to proposed Commentary 

.06(b)(i) to Rule 1009, the Exchange may 

list and trade options on an ETF without 

a CSSA provided that the ETF is listed 

pursuant to generic listing standards for 

series of PDRs and IFSs based on 

international or global indexes, in 

which case a comprehensive 

surveillance agreement is not required. 

As noted, one such rule, which 

discusses things such as weighting, 

capitalization, trading volume, 

minimum number of components, and 

where components are listed, is 

NASDAQ Rule 5705(b)(3)(A)(ii) 

regarding ETFs (IFSs and PDRs).29 The 

Exchange believes that these generic 

listing standards are intended to ensure 

that securities with substantial market 

capitalization and trading volume 

account for a substantial portion of the 

weight of an index or portfolio. 

The Exchange believes that this 

proposed listing standard for options on 

ETFs is reasonable for international and 

global indexes, and, when applied in 

conjunction with the other listing 

requirements, will result in options 

overlying ETFs that are sufficiently 

broad in scope and not readily 

susceptible to manipulation. The 

Exchange also believes that allowing the 

Exchange to list options overlying ETFs 

that are listed on equities exchanges 

pursuant to generic standards for series 

of PDRs and IFSs based on international 

or global indexes under which a CSSA 

is not required, will result in options 

overlying ETFs that are adequately 

diversified in weighting for any single 

security or small group of securities to 

significantly reduce concerns that 

trading in options overlying ETFs based 

on international or global indexes could 

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Federal Register / Vol. 80, No. 58 / Thursday, March 26, 2015 / Notices 16075 

30The Exchange also notes that not affording 

retail investors the ability to trade on a regulated 

exchange can be detrimental. While products can be 

traded off exchange in the over the counter (‘‘OTC’’) 

market, which has increased settlement, clearing, 

and market risk as opposed to exchanges, the 

relatively unregulated OTC market is usually not a 

viable option for retail and public investors. 

31 15 U.S.C. 78f(b). 

32 15 U.S.C. 78f(b)(5). 

become a surrogate for trading in 

unregistered securities.30

The Exchange believes that ETFs 

based on international and global 

indexes that have been listed pursuant 

to the generic standards are sufficiently 

defined so as to make options overlying 

such ETFs not susceptible instruments 

for manipulation. The Exchange 

believes that the threat of manipulation 

is, as discussed below, sufficiently 

mitigated for underlying ETFs that have 

been listed on equities exchanges 

pursuant to generic listing standards for 

series of PDRs and IFSs based on 

international or global indexes under 

which a comprehensive surveillance 

agreement is not required and for the 

overlying options; the Exchange does 

not see the need for a CSSA to be in 

place before listing and trading options 

on such ETFs. The Exchange notes that 

its proposal does not replace the need 

for a CSSA as provided in current 

Commentary .06(b) to Rule 1009. The 

provisions of Commentary .06(b), 

including the need for a CSSA, remain 

materially unchanged and will continue 

to apply to options on ETFs that are not 

listed on an equities exchange pursuant 

to generic listing standards for series of 

PDRs and IFSs based on international or 

global indexes. Instead, proposed 

Commentary .06(b)(i) adds an additional 

listing mechanism for certain qualifying 

options on ETFs to be listed on the 

Exchange. 

Finally, to account for proposed 

Commentary .06(b) to Rule 1009 and 

make Commentary .06 easier to follow, 

the Exchange proposes technical 

changes to the formatting of this section 

of the rule. The Exchange proposes renumbering Commentary .06(b)(i), (ii) 

and (iii) as Commentary .06(b)(ii)(A), 

(B), and (C), respectively; and renumbering Commentary .06(b)(iv) and 

(v) as Commentary .06(b)(iii) and (iv), 

respectively. This is merely renumbering and there are no changes to 

the language of these sections of 

Commentary .06. 

No Economic Risk 

The proposal does not raise a concern 

regarding economic risk or 

manipulation. The proposal does not 

increase the risk of manipulation of the 

ETF itself, as the ETF trades in the U.S. 

and trading is subject to the U.S. 

surveillance requirement and follows 

Exchange rules. One might try to argue 

that the proposal raises a concern about 

a theoretical manipulation risk of the 

underlying international components of 

the ETF trading in the U.S. If such 

manipulation were successful, the 

argument would go, then the ETF could 

be fairly priced relative to its 

components but the price of the 

components potentially may not reflect 

fair market value. The Exchange firmly 

believes that the proposal does not raise 

any such theoretical concern. 

For manipulation to be successful the 

expected cost of the contemplated 

manipulation must be less than the 

expected gain. In other words, 

manipulation will not be attempted if 

the prospective profit from the attempt 

is zero or less, even ignoring the quite 

real costs associated with regulatory 

risk. In approving the rules for narrow 

based indices, it was thought that the 

costs of manipulating such an index 

based on component securities with the 

same parameters as those proposed 

ETFs would be prohibitive relative to 

any prospective gains. The Exchange’s 

proposal does not suggest a different 

paradigm. 

Moreover, the Commission reviewed 

and approved the ability to list ETFs 

without surveillance agreements if they 

meet the generic listing standards for 

ETFs based on international or global 

indices. The Exchange believes that the 

argument and economic conclusion that 

allowing the listing of options on these 

same underlying ETFs with components 

outside the U.S. that are sufficiently 

large, transparent, diversified, and 

liquid to make manipulation 

unprofitable is valid. 

A second theoretical source of 

manipulation risk may be seen to be the 

creation/redemption process for ETFs. If 

the creation/redemption process could 

be manipulated then the market price of 

the ETF could materially differ from the 

fair value of the ETF derived from a fair 

market value of the components. Again, 

the Exchange does not agree that this is 

a significant manipulation risk for ETFs, 

let alone options on ETF. As noted, 

ETFs are a much more mature asset 

class today than in 2001 when the 

current rules were adopted. The 

development of ETFs as an established 

asset class and the listing and trading of 

ETFs, including the creation/

redemption process, has developed 

immensely since the introduction of 

ETFs, and options on them. Since 

manipulation of the creation/

redemption process would create 

economic profits for the manipulator, 

but such manipulation has not been 

manifest during the significant 

expansion of ETFs as an international 

asset class, this offers convincing 

evidence that manipulation risk in the 

creation/redemption process is, indeed, 

theoretical and not an increased risk 

with this proposal regarding the listing 

of ETF options. The Exchange believes 

that its proposal will not lead to 

increased economic risk. 

The Exchange requests approval of its 

proposal to allow the listing of options 

overlying ETFs (PDRs and IFSs) based 

on international or global indexes, 

without a comprehensive surveillance 

agreement. The proposal will, as 

discussed, be beneficial to investors and 

is in conformity with the Act. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 31 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 32

in particular, in that it is designed 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. In 

particular, the proposed rule change has 

the potential to reduce the time frame 

for bringing options on ETFs to market, 

thereby reducing the burdens on issuers 

and other market participants. The 

Exchange also believes that enabling the 

listing and trading of options on ETFs 

pursuant to this proposed new listing 

standard will benefit investors by 

providing them with valuable risk 

management tools. The Exchange notes 

that its proposal does not replace the 

need for a CSSA as provided in 

Commentary .06 to Rule 1009. The 

provisions of current Commentary .06, 

including the need for a CSSA, remain 

materially unchanged and will continue 

to apply to options on ETFs that are not 

listed on an equities exchange pursuant 

to generic listing standards for series of 

PDRs and IFSs based on international or 

global indexes under which a 

comprehensive surveillance agreement 

is not required. Instead, proposed 

Commentary .06(b)(i) to Rule 1009 adds 

an additional listing mechanism for 

certain qualifying options on ETFs to be 

listed on the Exchange in a manner that 

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, to 

remove impediments to and perfect the 

mechanisms of a free and open market 

and a national market system and, in 

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16076 Federal Register / Vol. 80, No. 58 / Thursday, March 26, 2015 / Notices 

33See Securities Exchange Act Release No. 43921 

(February 2, 2001), 66 FR 9739 (February 9, 2001) 

(SR–Phlx–2000–107) (ETF approval order). 

34http://www.icifactbook.org/fb_ch3.html. 

35See https://www.isgportal.org/home.html. 

Another global organization similar to ISG is The 

International Organization of Securities 

Commissions (‘‘IOSCO’’). 

36As discussed, the Exchange is decidedly not 

proposing that the surveillance agreement 

requirement be deleted entirely, but rather that only 

those options on ETFs that do not meet very 

specific generic listing standards need to have 

surveillance agreements in order to list on the 

Exchange. 

37See Securities Exchange Act Release No. 54739 

(November 9, 2006), 71 FR 66993 (November 17, 

2006) (SR–Amex–2006–78) (initial order relating to 

generic listing standards for ETFs based on 

international or global indexes). See also NASDAQ 

Rule 5705(a)(3)(A)(ii) and (b)(3)(A)(ii). 

38See Rule 1009A(b) and (d). 

general, to protect investors and the 

public interest. 

The proposal would promote just and 

equitable principles of trade. The 

surveillance agreement requirement was 

instituted in 2001 when ETFs were, 

comparatively speaking, in a 

developmental state.33 The first ETF 

introduced in 1993 was a broad-based 

domestic equity fund tracking the S&P 

500 index. After the introduction of the 

first ETF in 1993, the development of 

ETF products was very limited during 

the first decade of their existence. Since 

the end of 2001, when there was a total 

of only 102 ETFs listed on U.S. markets, 

however, the ETF market has matured 

tremendously and grown exponentially. 

With a total of 1,194 listed ETFs at the 

end of 2012, the ETF market is now one 

of the most highly-developed, 

sophisticated markets with many very 

well known, highly traded and liquid 

products that provide traders and 

investors the opportunity to access 

practically all industries and 

enterprises. While investor demand for 

ETFs in all asset classes increased 

substantially, in 2011 the demand for 

global and international equity ETFs, to 

which the requirement applies, more 

than doubled.34 The Exchange believes 

that the current surveillance 

requirement no longer serves a 

necessary function in today’s highly 

developed market, and, as discussed, 

actually creates a dynamic that 

negatively impacts the number of 

markets that can competitively trade 

ETF option products. This hurts market 

participants. The Exchange therefore 

proposes to establish that pursuant to 

proposed Commentary .06(b)(i) to Rule 

1009 options may be listed on certain 

ETFs that are based on global and 

international funds and meet generic 

listing standards. 

The proposal would in general protect 

investors and the public interest. The 

Exchange believes that modifying the 

surveillance agreement requirement for 

ETFs would not hinder the Exchange 

from performing surveillance duties 

designed to protect investors and the 

public interest. There are various data 

consolidators, vendors, and outlets that 

can be used to access data and 

information regarding ETFs and the 

underlying securities (e.g., Bloomberg, 

Dow Jones, FTEN). In addition, firms 

that list ETFs on an exchange receive 

vast amounts of data relevant to their 

products that could be made available to 

listing exchanges as needed. The 

Exchange has access to the activity of 

the direct underlying instrument and 

the ETF, and through the Intermarket 

Surveillance Group (‘‘ISG’’) the 

Exchange can obtain such information 

related to the underlying security as 

needed.35 Moreover, other than the 

surveillance agreement requirement 

there are, as discussed, numerous 

requirements in Rule 1009 that must be 

met to list options on ETFs on the 

Exchange. 

The proposal would remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system. Multiple 

listing of ETFs, options, and other 

securities and competition are some of 

the central features of the current 

national market system. The Exchange 

believes that the surveillance agreement 

requirement has led to clearly anticompetitive results in a market that is 

based on competition. As such, the 

Exchange believes that the surveillance 

agreement requirement for options on 

certain ETFs is no longer necessary and 

proposes new Commentary .06(b)(i) to 

Rule 1009. The proposed rule change 

will significantly benefit market 

participants. As discussed at length, the 

proposed rule will negate the negative 

anti-competitive effect of the current 

surveillance agreement requirement that 

has resulted in de facto regulatory 

monopolies where only solitary 

exchanges, or only a few exchanges, are 

able to list certain ETF options 

products. The Exchange believes this is 

inconsistent with Commission policies 

and the developing national market 

system, as well as the competitive 

nature of the market, and therefore 

proposes amendment.36 The Exchange 

believes that the proposal would 

encourage a more open market and 

national market system based on 

competition and multiple listing. The 

generic listing standards for ETFs based 

on global or international indexes have 

specific requirements regarding relative 

weighting, minimum capitalization, 

minimum trading volume, and 

minimum number of components that 

have been approved by the Commission 

years ago for foreign ETFs.37 Moreover, 

such listing standards have been in 

continuous use for listing options on 

narrow-based and broad-based indexes 

on the Exchange.38 Allowing the listing 

of options on underlying ETFs based on 

global and international indexes that 

meet generic listing standards would 

encourage a free and open market and 

national market system to the benefit of 

market participants. 

Finally, the Exchange’s proposal for 

limiting the necessity of surveillance 

agreements to list options on ETFs does 

not, as discussed above, raise a concern 

regarding manipulation. The Exchange 

believes that its proposal is not 

indicative of increased economic risk. 

For the above reasons, the Exchange 

believes the proposed rule change is 

consistent with the requirements of 

Section 6(b)(5) of the Act. 

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. To the 

contrary, the Exchange believes that the 

proposal is, as discussed, decidedly procompetitive and is a competitive 

response to the inability to list products 

because of the surveillance agreement 

requirement. The Exchange believes that 

the proposed rule change will result in 

additional investment options and 

opportunities to achieve the investment 

objectives of market participants seeking 

efficient trading and hedging vehicles, 

to the benefit of investors, market 

participants, and the marketplace in 

general. Competition is one of the 

principal features of the national market 

system. The Exchange believes that this 

proposal will expand competitive 

opportunities to list and trade products 

on the Exchange as noted. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the proposed rule change 

does not (i) significantly affect the 

protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

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Federal Register / Vol. 80, No. 58 / Thursday, March 26, 2015 / Notices 16077 

39 15 U.S.C. 78s(b)(3)(A). 

40 17 CFR 240.19b–4(f)(6). As required under Rule 

19b–4(f)(6)(iii), the Exchange provided the 

Commission with written notice of its intent to file 

the proposed rule change, along with a brief 

description and the 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. 

41 17 CFR 240.19b–4(f)(6). 

42 17 CFR 240.19b–4(f)(6)(iii). 

43See Securities Exchange Act Release No. 74509 

(March 13, 2015), 80 FR 14425 (March 19, 2015) 

(SR–MIAX–2015–04). 

44For 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). 45 17 CFR 200.30–3(a)(12). 

which it was filed, or such shorter time 

as the Commission may designate, the 

proposed rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act 39 and Rule 19b–4(f)(6) 

thereunder.40

A proposed rule change filed 

pursuant to Rule 19b–4(f)(6) under the 

Act 41 normally does not become 

operative for 30 days after the date of its 

filing. However, Rule 19b–4(f)(6)(iii) 42

permits the Commission to designate a 

shorter time if such action is consistent 

with the protection of investors and the 

public interest. The Exchange has asked 

the Commission to waive the 30-day 

operative delay so that the proposal may 

become operative immediately upon 

filing. The Exchange stated that waiver 

of the operative delay will permit the 

Exchange to list and trade certain ETF 

options on the same basis as another 

options market.43 The Commission 

believes the waiver of the operative 

delay is consistent with the protection 

of investors and the public interest. 

Therefore, the Commission hereby 

waives the operative delay and 

designates the proposal operative upon 

filing.44

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. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or 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 email to rule-comments@

sec.gov. Please include File Number SR– 

Phlx–2015–27 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–Phlx–2015–27. 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 

10:00 a.m. and 3:00 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–Phlx– 

2015–27 and should be submitted on or 

before April 16, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.45

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–06887 Filed 3–25–15; 8:45 am] 

BILLING CODE 8011–01–P 

DEPARTMENT OF STATE 

[Public Notice 9070] 

Advisory Committee on International 

Economic Policy; Notice of Open 

Meeting 

The Advisory Committee on 

International Economic Policy (ACIEP) 

will meet between 2:00 and 5:00 p.m., 

on Tuesday, April 14, 2015, in Room 

4477 of the Harry S Truman Building at 

the U.S. Department of State, 2201 C 

Street NW., Washington, DC. The 

meeting will be hosted by the Assistant 

Secretary of State for Economic and 

Business Affairs, Charles H. Rivkin and 

Committee Chair Paul R. Charron. The 

ACIEP serves the U.S. government in a 

solely advisory capacity, and provides 

advice concerning topics in 

international economic policy. The 

meeting will examine ‘‘The President’s 

Trade Agenda.’’ It is expected that the 

ACIEP subcommittees will provide 

updates on their work. 

This meeting is open to public 

participation, though seating is limited. 

Entry to the building is controlled. To 

obtain pre-clearance for entry, members 

of the public planning to attend should 

no later than Tuesday April 7, provide 

their full name, professional affiliation, 

valid government-issued ID number 

(i.e., U.S. government ID, U.S. military 

ID, passport [country], or driver’s 

license [state]), date of birth, and 

citizenship, to Gregory Maggio by email: 

Maggiogf@state.gov. All persons 

wishing to attend the meeting must use 

the 21st Street entrance on 21st Street 

near Virginia Avenue (not the ‘‘jogger’s’’ 

entrance or the C Street entrance) of the 

State Department. Due to escorting 

requirements, non-government 

attendees should plan to arrive no later 

than 15 minutes before the meeting 

begins. Requests for reasonable 

accommodation should be made to 

Gregory Maggio before Tuesday, April 7. 

Requests made after that date will be 

considered, but might not be possible to 

fulfill. 

Personal data is requested pursuant to 

Public Law 99–399 (Omnibus 

Diplomatic Security and Antiterrorism 

Act of 1986), as amended; Public Law 

107–56 (USA PATRIOT Act); and 

Executive Order 13356. The purpose of 

the collection is to validate the identity 

of individuals who enter Department 

facilities. The data will be entered into 

the Visitor Access Control System 

(VACS–D) database. Please see the 

Security Records System of Records 

Notice (State-36) at http://www.state.

gov/documents/organization/

103419.pdf for additional information. 

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