[Federal Register Volume 74, Number 97 (Thursday, May 21, 2009)]
[Notices]
[Pages 23902-23907]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-11807]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59923; File No. SR-NASDAQ-2009-046]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the Criteria for Securities That Underlie Options Traded on 
the Exchange

May 14, 2009.
    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 May 8, 2009, The NASDAQ Stock Market LLC (``Nasdaq'') 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 Nasdaq. Nasdaq filed the proposed rule change as 
a ``non-controversial'' proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which 
renders the proposal effective upon filing with the Commission. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes for NOM to modify Chapter IV, Section 3 (Criteria 
for Underlying Securities) and Section 4 (Withdrawal of Approval of 
Underlying Securities) of its options rules to: (1) Enable listing and 
trading of options on equity index-linked securities, commodity-linked 
securities, currency-linked securities, fixed income index-linked 
securities, futures-linked securities, and multifactor index-linked 
securities (collectively referred to as ``Index-Linked Securities'') 
that are principally traded on a national securities exchange and an 
``NMS stock'' as defined in Rule 600 of Regulation NMS; (2) enable 
listing and trading of options on Index Multiple Exchange Traded Fund 
Shares (``Index Multiple ETFs'') and Index Inverse Exchange Traded Fund 
Shares (``Index Inverse ETFs''); (3) enable listing and trading of 
options on certain funds that hold specified non-U.S. currencies 
(``Currency Trust Shares''); and (4) enable listing and trading of 
options on commodity pool interests that hold and/or manage portfolios 
or baskets of securities, commodity futures contracts, options on 
commodity futures contracts, swaps, forward contracts and/or options on 
physical commodities and/or non-U.S. currency (``Commodity Pool 
ETFs'').
    The text of the proposed rule change is available from Nasdaq's Web 
site at http://nasdaq.cchwallstreet.com, at Nasdaq's principal office, 
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, Nasdaq included statements 
concerning the purpose of, and basis for, the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. Nasdaq 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
    This proposed rule change is based directly on recent rule change 
proposals of NASDAQ OMX PHLX, Inc. (``Phlx'') \5\ and other option 
exchanges.\6\
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    \5\ See Securities Exchange Act Release Nos. 58571 (September 
17, 2008), 73 FR 55188 (September 24, 2008) (SR-Phlx-2008-60) 
(notice of filing and immediate effectiveness regarding Index-Linked 
Securities and Currency Trust Shares); 57715 (April 25, 2009), 73 FR 
23518 (April 30, 2008) (SR-Phlx-2008-30) (notice of filing and 
immediate effectiveness regarding Index Multiple ETFs and Index 
Inverse ETFs); and 55951 (June 25, 2007), 72 FR 37298 (July 9, 2007) 
(SR-Phlx-2007-35) (approval order regarding Commodity Pool ETFs).
    \6\ See, regarding Index-Linked Securities, Exchange Act Release 
Nos. 58204 (July 22, 2008), 73 FR 43807 (July 28, 2008) (SR-CBOE-
2008-64) (approval order); and 58985 (November 20, 2008), 73 FR 
72538 (November 28, 2008) (SR-ISE-2008-86) (notice of filing and 
immediate effectiveness). See also, regarding Index Multiple ETFs 
and Index Inverse ETFs, Exchange Act Release No. 56715 (October 29, 
2007), 72 FR 62287 (November 2, 2007) (SR-CBOE-2007-119) (approval 
order); and 56871 (November 30, 2007), 72 FR 68924 (December 6, 
2007) (SR-ISE-2007-87) (approval order). See also, regarding 
Commodity Pool Units (ETFs), 55630 (April 13, 2007), 72 FR 19993 
(April 20, 2007) (SR-CBOE-2007-21) (approval order); and 55635 
(April 16, 2007), 72 FR 19999 (April 20, 2007) (SR-ISE-2007-16) 
(approval order). See also, regarding Currency Trust Shares, 
Securities Exchange Act Release No. 54983 (December 20, 2006), 71 FR 
78476 (December 29, 2006) (AMEX-2006-87) (approval order).
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    This rule change is being proposed, subsequent to the merger of The 
NASDAQ OMX Group, Inc. (``NASDAQ OMX'') and the Philadelphia Stock 
Exchange, Inc. (now NASDAQ OMX PHLX),\7\ to more closely align, to the 
extent practicable, certain listing rules of the Exchange (NOM) and 
Phlx.\8\
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    \7\ See Securities Exchange Act Release No. 58179 (July 17, 
2008), 73 FR 42874 (July 23, 2008) (SR-Phlx-2008-31). See also 
Securities Exchange Act Release No. 58183 (July 17, 2008), 73 FR 
26182 (May 8, 2008) (SR-NASDAQ-2008-035).
    \8\ See, e.g., Securities Exchange Act Release No. 59697 (April 
2, 2009), 74 FR 16249 (April 9, 2009), (SR-Phlx-2009-23) (notice of 
filing); and 59794 (April 20, 2009), 74 FR 18761 (April 24, 2009) 
(SR-Phlx-2009-17) (approval order).
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    Chapter IV, Sections 3 and 4 (referred to in this filing as 
``Sections 3 and 4'' or individually as ``Section 3'' and ``Section 
4'') generally indicate on which underlying securities the Exchange may 
initially list and continue to list options. The purpose of the 
proposed rule change is to revise Sections 3 and 4 to enable the 
listing and trading of options on: Index-Linked Securities that are 
principally traded on a national securities exchange and an ``NMS 
stock'' as defined in Rule 600 of Regulation NMS; Index Multiple ETFs 
and Index Inverse ETFs (together known as ``Multiple Inverse ETFs''); 
Currency

[[Page 23903]]

Trust Shares; and Commodity Pool ETFs.
Index-Linked Securities
    Index-Linked Securities are designed for investors who desire to 
participate in a specific market segment by providing exposure to one 
or more identifiable underlying securities, commodities, currencies, 
derivative instruments or market indexes of the foregoing (``Underlying 
Index'' or ``Underlying Indexes''). Index-Linked Securities are the 
non-convertible debt of an issuer that have a term of at least one (1) 
year but not greater than thirty (30) years. Despite the fact that 
Index-Linked Securities are linked to an underlying index, each trades 
as a single, exchange-listed security. Accordingly, rules pertaining to 
the listing and trading of standard equity options will apply to Index-
Linked Securities.
Listing Criteria (Index-Linked Securities)
    Currently, there is no provision in the Exchange's initial listing 
rules, which are found in Section 3, for trading options on Index-
Linked Securities. The Exchange will consider listing and trading 
options on Index-Linked Securities provided that they meet the new 
criteria for underlying securities set forth in Section 3.
    The Exchange proposes to add new subsection (l) to Section 3, which 
indicates that six types of Index-Linked Securities are deemed 
appropriate for options representing ownership of a security that 
provides for the payment at maturity, as described below:
    (1) Equity Index-Linked Securities are securities that provide for 
the payment at maturity of a cash amount based on the performance of an 
underlying index or indexes of equity securities (``Equity Reference 
Asset'');
    (2) Commodity-Linked Securities are securities that provide for the 
payment at maturity of a cash amount based on the performance of one or 
more physical commodities or commodity futures, options or other 
commodity derivatives or Commodity-Based Trust Shares or a basket or 
index of any of the foregoing (``Commodity Reference Asset'');
    (3) Currency-Linked Securities are securities that provide for the 
payment at maturity of a cash amount based on the performance of one or 
more currencies, or options or currency futures or other currency 
derivatives or Currency Trust Shares \9\ or a basket or index of any of 
the foregoing (``Currency Reference Asset'');
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    \9\ ``Currency Trust Shares'' is defined as a security that: (a) 
Holds a specified non-U.S. currency deposited with the trust or 
similar entity; (b) when aggregated in some specified minimum number 
may be surrendered to the trust by the beneficial owner to receive 
the specified non-U.S. currency or currencies; and (c) pays the 
beneficial owner interest and other distributions on deposited non-
U.S. currency or currencies, if any, declared and paid by the trust. 
See proposed Section 3(i), which is based on Commentary .06 to Phlx 
Rule 1009. See also Securities Exchange Act Release No. 58571 
(September 17, 2008), 73 FR 55188 (September 24, 2008)(SR-Phlx-2008-
60)(notice of filing and immediate effectiveness).
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    (4) Fixed Income Index-Linked Securities are securities that 
provide for the payment at maturity of a cash amount based on the 
performance of one or more notes, bonds, debentures or evidence of 
indebtedness that include, but are not limited to, U.S. Department of 
Treasury securities (``Treasury Securities''), government sponsored 
entity securities (``GSE Securities''), municipal securities, trust 
preferred securities, supranational debt and debt of a foreign country 
or a subdivision thereof or a basket or index of any of the foregoing 
(``Fixed Income Reference Asset'');
    (5) Futures-Linked Securities are securities that provide for the 
payment at maturity of a cash amount based on the performance of an 
index of (a) futures on Treasury Securities, GSE Securities, 
supranational debt and debt of a foreign country or a subdivision 
thereof, or options or other derivatives on any of the foregoing; or 
(b) interest rate futures or options or derivatives on the foregoing in 
this subparagraph (b) (``Futures Reference Asset''); and
    (6) Multifactor Index-Linked Securities are securities that provide 
for the payment at maturity of a cash amount based on the performance 
of any combination of two or more Equity Reference Assets, Commodity 
Reference Assets, Currency Reference Assets, Fixed Income Reference 
Assets or Futures Reference Assets (``Multifactor Reference Asset''). 
For the purposes of Section 3(l), Equity Reference Assets, Commodity 
Reference Assets, Currency Reference Assets, Fixed Income Reference 
Assets, Futures Reference Assets and Multifactor Reference Assets, will 
be collectively referred to as ``Reference Assets.'' Index-Linked 
Securities must meet the criteria and guidelines for underlying 
securities set forth in Section 3(b), or the Index-Linked Securities 
must be redeemable at the option of the holder at least on a weekly 
basis through the issuer at a price related to the applicable 
underlying Reference Asset. In addition, the issuing company is 
obligated to issue or repurchase the securities in aggregation units 
for cash or cash equivalents satisfactory to the issuer of Index-Linked 
Securities which underlie the option as described in the Index-Linked 
Securities prospectus.
Continued Listing Requirements (Index-Linked Securities)
    The Exchange proposes to establish new Section 4(k), which will 
include criteria related to the continued listing of options on Index-
Linked Securities.
    Under the applicable continued listing criteria proposed in Section 
4(k), options on Index Linked Securities initially approved for trading 
pursuant to proposed Section 3(l) may be subject to the suspension of 
opening transactions as follows: (1) Non-compliance with the terms of 
Section 3(l); (2) non-compliance with the terms of Section 4(b), except 
in the case of options covering Index Linked Securities approved 
pursuant to Section 3(l)(iii)2 that are redeemable at the option of the 
holder at least on a weekly basis, then option contracts of the class 
covering such securities may only continue to be open for trading as 
long as the securities are listed on a national securities exchange and 
are an ``NMS stock'' as defined in Rule 600 of Regulation NMS; (3) in 
the case of any Index-Linked Security trading pursuant to Section 3(l), 
the value of the Reference Asset is no longer calculated or available; 
or (4) such other event shall occur or condition exist that in the 
opinion of the Exchange makes further dealing in such options on the 
Exchange inadvisable.
    The Exchange represents that the listing and trading of options on 
Index-Linked Securities under Section 3(l) will not have any effect on 
the rules pertaining to position and exercise limits \10\ or 
margin.\11\ Options on Index-Linked Securities will be subject to all 
rules governing the trading of equity options and the current 
continuing or maintenance listing standards for options trading on the 
Exchange.
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    \10\ See NOM Rules Chapter III, Sections 7 and 8; Chapter XIV, 
Sections 7 and 8; Chapter III, Section 9; and Chapter XIV, Section 
9.
    \11\ See NOM Rules Chapter VIII.
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    The Exchange represents that its existing surveillance procedures 
applicable to trading in options are adequate to properly monitor the 
trading in options on Index-Linked Securities and to deter and detect 
violations of Exchange rules.\12\
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    \12\ See, e.g., Section 3(l)(iv)(discussing, among other things, 
comprehensive surveillance agreements).

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[[Page 23904]]

Index Multiple ETFs and Index Inverse ETFs
    Index Multiple ETFs \13\ seek to provide investment results, before 
fees and expenses, that correspond to a specified multiple of the 
percentage performance on a given day of a particular foreign or 
domestic stock index. Index Inverse ETFs seek to provide investment 
results, before fees and expenses, that correspond to the inverse 
(opposite) of the percentage performance on a given day of a particular 
foreign or domestic stock index by a specified multiple. Index Multiple 
ETFs and Index Inverse ETFs differ from traditional exchange-traded 
fund shares in that they do not merely correspond to the performance of 
a given index, but rather attempt to match a multiple or inverse of 
such underlying index performance.\14\ The ProShares Ultra Funds, which 
currently trade on NYSE Arca and traded on the American Stock Exchange 
(``Amex''), is an example of an Index Multiple ETF. NYSE Arca also 
currently lists for trading Index Inverse ETFs, namely the Short Funds 
and the UltraShort Funds.\15\
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    \13\ ETFs are also know as ``Fund Shares'' or ``Funds;'' these 
terms may be used interchangeably.
    \14\ Index Multiple ETFs and Index Inverse ETFs together may be 
known as ``Multiple-Inverse ETFs.''
    \15\ See Securities Exchange Act Release Nos. 52553 (October 3, 
2005), 70 FR 59100 (October 11, 2005)(SR-AMEX-2004-62)(approving the 
listing and trading of Ultra Funds and Short Funds) and 54040 (June 
23, 2006), 71 FR 37629 (June 30, 2006)(SR-AMEX-2006-41)(approving 
the listing and trading of the UltraShort Funds). The Ultra Funds 
are expected to gain, on a percentage basis, approximately twice 
(200%) as much as the underlying benchmark index and should lose 
approximately twice (200%) as much as the underlying benchmark index 
when such prices decline. The Short Funds are expected to achieve 
investment results, before fees and expenses, that correspond to the 
inverse or opposite of the daily performance (-100%) or an 
underlying benchmark index. Lastly, the UltraShort Funds are 
expected to achieve investment result, before fees and expenses, 
that correspond to twice the inverse or opposite of the daily 
performance (-200%) of the underlying benchmark index.
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    Generally, in order to achieve investment results that provide 
either a positive multiple or inverse of the benchmark index, Index 
Multiple ETFs or Index Inverse ETFs may hold a combination of financial 
instruments, including, among other things: Stock index futures 
contracts; options on futures; options on securities and indexes; 
equity caps, collars and floors; swap agreements; forward contracts; 
repurchase agreements; and reverse repurchase agreements. The 
underlying portfolios of Index Multiple ETFs generally will hold at 
least 85% of their assets in the component securities of the underlying 
relevant benchmark index. The remainder of any assets is devoted to 
Financial Instruments that are intended to create the additional needed 
exposure to such underlying index necessary to pursue its investment 
objective. Normally, 100% of the value of the underlying portfolios of 
Index Inverse ETFs will be devoted to Financial Instruments and money 
market instruments, including U.S. government securities and repurchase 
agreements.

Listing Criteria (Index Multiple ETFs and Index Inverse ETFs)

    Currently, there is no provision in the Exchange's initial listing 
rules for trading options on Index Multiple ETFs or Index Inverse ETFs. 
Section 3(i) currently provides that securities deemed appropriate for 
options trading shall include shares or other securities (``Fund 
Shares'') that represent interests in registered investment companies 
(or series thereof) organized as open-end management investment 
companies, unit investment trusts or similar entities that are 
principally traded on a national securities exchange or through the 
facilities of a national securities association and reported as 
``national market'' securities, and that hold portfolios of securities 
comprising or otherwise based on or representing investments in indexes 
or portfolios of securities (or that hold securities in one or more 
other registered investment companies that themselves hold such 
portfolios of securities) (``Funds ``) or represent interests in the 
SPDR Gold Trust.\16\
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    \16\ Similarly to Commentary .06 to Phlx Rule 1009, the Exchange 
proposes to indicate in Section 3(i) that these interests may be in 
the SPDR Gold Trust or issued by the iShares COMEX Gold Trust or 
iShares Silver Trust.
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    The Exchange proposes to amend Section 3(i) to indicate that Index 
Multiple ETFs or Index Inverse ETFs are deemed appropriate for options 
trading. Section 3(i) is expanded to indicate that options eligible for 
listing and trading include those that are based on Index Multiple ETFs 
and Index Inverse ETFs that may hold or invest in any combination of 
securities, Financial Instruments and/or Money Market Instruments.\17\
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    \17\ ``Financial Instruments'' are defined to include stock 
index futures contracts, options on futures, options on securities 
and indexes, equity caps, collars and floors, swap agreements, 
forward contracts, repurchase agreements and reverse repurchase 
agreements. ``Money Market Instruments'' are defined to include U.S. 
government securities and repurchase agreements. See Section 3(i), 
which is based on Commentary .06 to Phlx Rule 1009.
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    As further set forth in proposed amended Section 3(l), securities 
deemed appropriate for options trading (Fund Shares) that may include 
Partnership Units,\18\ Index Multiple ETFs and Index Inverse ETFs must 
be traded on a national securities exchange and must be an ``NMS 
stock'' as defined under Rule 600 of Regulation NMS. In addition, 
securities deemed appropriate for options trading must meet either: (i) 
The criteria and guidelines under Chapter 3, Section 3(b); or (ii) be 
available for creation or redemption each business day in cash or in 
kind from the investment company, commodity pool\19\ or other entity at 
a price related to net asset value. In addition, the investment 
company, commodity pool or other entity shall provide that shares may 
be created even though some or all of the securities and/or cash (in 
lieu of the Financial Instruments) needed to be deposited have not been 
received by the unit investment trust or the management investment 
company, provided the authorized creation participant has undertaken to 
deliver the shares and/or cash as soon as possible and such undertaking 
has been secured by the delivery and maintenance of collateral 
consisting of cash or cash equivalents satisfactory to the fund which 
underlies the option as described in the prospectus.
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    \18\ ``Partnership Unit'' is defined as a security that: (a) Is 
issued by a partnership that invests in any combination of futures 
contracts, options on futures contracts, forward contracts, 
commodities (as defined in Section 1(a)(4) of the Commodity Exchange 
Act) and/or securities; and (b) is issued and redeemed daily in 
specified aggregate amounts at net asset value. See proposed Section 
3(m), which is based on Commentary .06 to Phlx Rule 1009.
    \19\ Commodity pool interests that are principally engaged, 
directly or indirectly, in holding and/or managing portfolios or 
baskets of securities, commodity futures contracts, options on 
commodity futures contracts, swaps, forward contracts and/or options 
on physical commodities and/or non-U.S. currency are known as 
``Commodity Pool ETFs.'' See Chapter IV, Section 3(i), which is 
based on Commentary .06 to Phlx Rule 1009.
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    The Exchange proposes to also make clarifying changes to Section 
3(i) to conform it to Commentary .06 of Phlx Rule 1009, as well as the 
rules of other option exchanges, regarding interests in a fund or trust 
that holds a specified non-U.S. currency or currencies, and 
surveillance agreements in respect thereof.\20\ Thus, the Exchange 
proposes to amend its Section 3(i) to expand the type of options to 
include options on funds (trusts) that represent an interest in a trust 
or other similar entity that holds specified non-U.S. currency or 
currencies deposited with the trust or

[[Page 23905]]

similar entity (Currency Trust Shares). The Exchange is also proposing 
to require in Section 3(i)(iv) that for Funds that hold specified non-
U.S. currencies deposited with the trust, the Exchange will have 
entered into a comprehensive surveillance sharing agreement with the 
marketplace or marketplaces with last sale reporting that represent(s) 
the highest volume in derivatives (options or futures) on the non-U.S. 
currency or currencies, which are utilized by the national securities 
exchange where the underlying Funds are listed and traded.\21\
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    \20\ Section 3(i) as proposed, and Commentary .06 to Phlx Rule 
1009, are substantially similar to Interpretation and Policy .06(ii) 
and (v)(D) to CBOE Rule 5.3 and ISE Rule 502(h)(ii) and (h)(B)(4).
    \21\ See, e.g., Securities Exchange Act Release No. 54983 
(December 20, 2006), 71 FR 78476 (December 29, 2006)(AMEX-2006-87). 
AMEX noted in the filing that the proposed amendments to its Rule 
915 would permit it to list options on products such as the Euro 
Currency Trust, which issues Euro Shares that represent units of 
fractional undivided beneficial interest in, and ownership of, the 
noted trust; and that the investment objective of the trust was for 
the Euro Shares to reflect the price of the euro.
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Continued Listing Requirements (Index Multiple ETFs and Index Inverse 
ETFs)
    The Exchange proposes to amend Section 4 to indicate that the index 
or portfolio may consist of various securities, Financial Instruments 
and/or Money Market Instruments. The Exchange proposes to clarify that 
the relevant instruments have to be an ``NMS stock'' under Rule 600 of 
Regulation NMS. Under the applicable continued listing criteria in 
Section 4(h), options on ETFs may be subject to the suspension of 
opening transactions as follows: (1) Following the initial twelve-month 
period beginning upon the commencement of trading of the ETFs, there 
are fewer than 50 record and/or beneficial holders of the ETFs for 30 
or more consecutive trading days; (2) the value of the index or 
portfolio of securities, non-U.S. currency, or portfolio of commodities 
including commodity futures contracts, options on commodity futures 
contracts, swaps, forward contracts and/or options on physical 
commodities and/or Financial Instruments and Money Market Instruments 
on which Fund Shares (ETFs) are based is no longer calculated or 
available; or (3) such other event occurs or condition exists that in 
the opinion of the Exchange makes further dealing in such options 
inadvisable.\22\ Section 4(h) is expanded, similarly to Section 3(i), 
to indicate that options eligible for continued listing and trading 
include those that are based on Index Multiple ETFs and Index Inverse 
ETFs that may hold or invest in any combination of securities, 
Financial Instruments and/or Money Market Instruments.
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    \22\ As discussed in detail below, the Exchange will not open 
for trading any additional series of equity options already approved 
for trading that do not meet the requirements for continued approval 
and may determine to delist the entire class of options for 
inadequate volume. See proposed Section 4(l), which is based on 
Commentary .11 to Phlx Rule 1010.
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    The Exchange represents that the listing and trading of options on 
Index Multiple ETFs and Index Inverse ETFs will not have any effect on 
the rules pertaining to position and exercise limits \23\ or 
margin.\24\ Options on Index Multiple ETFs and Index Inverse ETFs will 
be subject to all rules governing the trading of equity options and the 
current continuing or maintenance listing standards for options trading 
on the Exchange.
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    \23\ See NOM Rules Chapter III, Sections 7 and 8; Chapter XIV, 
Sections 7 and 8; Chapter III, Section 9; and Chapter XIV, Section 
9.
    \24\ See NOM Rules Chapter VIII.
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    This proposal is necessary to enable the Exchange to list and trade 
options on the shares of funds such as the Short Fund and UltraShort 
Fund of the ProShares Trust.\25\ The proposed amendment is also 
necessary to enable the Exchange to continue to list and trade 
interests in Funds that hold specified non-U.S. currencies. The 
Exchange believes that the ability to trade options on these products 
will provide investors with greater risk management tools.
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    \25\ See Securities Exchange Act Release Nos. 52553 (October 3, 
2005), 70 FR 59100 (October 11, 2005)(SR-AMEX-2004-62 and 54040 
(June 23, 2006), 71 FR 37629 (June 3)(SR-AMEX-2006-41).
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    The Exchange represents that its existing surveillance procedures 
applicable to trading in options are adequate to properly monitor the 
trading in options on Index Multiple ETFs and Index Inverse ETFs and to 
deter and detect violations of Exchange rules.\26\
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    \26\ See, e.g., Section 3 (i)(i)(discussing, among other things, 
comprehensive surveillance agreements).
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Commodity Pool ETFs
    Commodity Pool ETFs directly or indirectly trade commodity futures 
products. As such, Commodity Pool ETFs are subject to the Commodity 
Exchange Act due to their status as a commodity pool,\27\ and therefore 
are regulated by the Commodity Futures Trading Commission 
(``CFTC'').\28\ Commodity Pool ETFs may hold or trade in one or more 
types of investments that may include any combination of securities, 
commodity futures contracts, options on commodity futures contracts, 
swaps, and forward contracts.
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    \27\ A ``commodity pool'' is defined in CFTC Regulation 
4.10(d)(1) as any investment trust, syndicate, or similar form of 
enterprise operated for the purpose of trading commodity interests. 
CFTC regulations further provide that a ``commodity interest'' means 
a commodity futures contract and any contract, agreement or 
transaction subject to Commission regulation under section 4c or 19 
of the Act. See CFTC Regulation 4.10(a).
    \28\ The manager or operator of a ``commodity pool'' is required 
to register, unless applicable exclusions apply, as a commodity pool 
operator (``CPO'') and commodity trading advisor (``CTA'') with the 
CFTC and become a member of the National Futures Association 
(``NFA'').
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Listing Criteria and Continued Listing Requirements (Commodity Pool 
ETFs)
    Currently, there is no provision in the Exchange's initial listing 
rules for trading options on Commodity Pool ETFs.
    The Exchange proposes to amend Section 3(i) to indicate that, 
similarly to Index-Linked Securities and Index Multiple ETFs and Index 
Inverse ETFs, Commodity Pool ETFs are deemed appropriate for options 
trading. As such, Commodity Pool ETFs are proposed to represent 
commodity pool interests principally engaged, directly or indirectly, 
in holding and/or managing portfolios or baskets of securities, 
commodity futures contracts, options on commodity futures contracts, 
swaps, forward contracts and/or options on physical commodities and/or 
non-U.S. currency.\29\ To be eligible for options trading, Commodity 
Pool ETFs, like other option eligible securities, must be registered 
with the SEC and be an ``NMS stock'' as defined in Rule 600 of 
Regulation NMS under the Exchange Act.
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    \29\ See Section 3(i)(ii), which is based on Commentary .06 to 
Phlx Rule 1009. See also 55951 (June 25, 2007), 72 FR 37298 (July 9, 
2007) (SR-Phlx-2007-35).
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    The Exchange also proposes in Section 3 to establish a 
comprehensive surveillance agreement requirement for Commodity Pool 
ETFs.\30\ The Exchange represents that its existing surveillance 
procedures applicable to trading in options are adequate to properly 
monitor the trading in options on Commodity Pool ETFs and to deter and 
detect violations of Exchange rules.
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    \30\ For Commodity Pool ETFs that engage in holding and/or 
managing portfolios or baskets commodity futures contracts, options 
on commodity futures contracts, swaps, forward contracts, options on 
physical commodities, options on non-U.S. currency and/or 
securities, the Exchange has entered into a comprehensive 
surveillance sharing agreement with the marketplace or marketplaces 
with last sale reporting that represent(s) the highest volume in 
such commodity futures contracts and/or options on commodity futures 
contracts on the specified commodities or non-U.S. currency, which 
are utilized by the national securities exchange where the 
underlying Commodity Pool ETFs are listed and traded. See Section 
3(i)(iv), which is based on Commentary .06(b) to Phlx Rule 1009.
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    The listing and trading of options on Commodity Pool ETFs will not 
have any

[[Page 23906]]

effect on the rules pertaining to position and exercise limits \31\ or 
margin.\32\ Options on Commodity Pool ETFs will be subject to all rules 
governing the trading of equity options and the current continuing or 
maintenance listing standards for options trading on the Exchange.
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    \31\ See NOM Rules Chapter III, Sections 7 and 8; Chapter XIV, 
Sections 7 and 8; Chapter III, Section 9; and Chapter XIV, Section 
9.
    \32\ See NOM Rules Chapter VIII.
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Inadequate Volume Delisting
    In terms of housekeeping, the Exchange proposes to amend Section 4 
so that the Exchange may delist options that have inadequate trading 
volume, similarly to Phlx and other option exchanges.\33\
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    \33\ See Securities Exchange Act No. 56881 (December 3, 2007), 
72 FR 69276 (December 7, 2007) (SR-Phlx-2007-72) (approval order 
regarding delisting equity options classes where average daily 
volume is less that 20 contracts). Other options exchanges have 
similar delisting provisions. See Securities Exchange Act Release 
Nos. 55154 (January 23, 2007), 72 FR 4743 (February 1, 2007) (SR-
CBOE-2006-92) (delisting equity options classes where ADV is less 
than 20 contracts); and 55161 (January 24, 2007), 72 FR 4754 
(February 1, 2007) (SR-ISE-2006-62) (delisting equity options 
classes where ADV is less than 20 contracts).
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    Section 4(l), which is based on Commentary .11 to Phlx Rule 
1010,\34\ would allow the Exchange to cease listing additional series 
of equity options and to delist the class of equity options where the 
option has been trading on the Exchange not less than six (6) months 
and the Exchange average daily volume (``ADV'') of the entire class of 
options was less than twenty (20) contracts over the last six (6) month 
period. The proposal also would provide that if an option is singly 
listed only on the Exchange, the Exchange will cease to add new series 
and may delist the option when there is no remaining open interest in 
the product. Should the Exchange determine to delist an equity option 
pursuant to subsection (l) of Section 4, it will provide notification 
of the determination to delist such option not less than three (3) days 
prior to the scheduled delisting date.
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    \34\ See Securities Exchange Act No. 56881 (December 3, 2007), 
72 FR 69276 (December 7, 2007) (SR-Phlx-2007-72).
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    The Exchange believes that its low ADV delisting proposal is 
consistent with the Exchange's maintenance and delisting criteria in 
Section 4 and should reduce or eliminate the quotation traffic 
attendant to low volume options listings that may nevertheless 
experience significant quoting activity. This should, in turn, diminish 
the total number of strikes that need to be maintained by the Exchange 
and potentially may thereby reduce technology costs for the Exchange 
and its member organizations and free up Exchange capacity. The 
Exchange further believes that expanding its ability to manage 
quotation traffic should benefit not only the Exchange and its members, 
but also public and professional traders and ultimately the industry.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \35\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \36\ 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. The Exchange believes that the proposed rules applicable to 
trading Index-Linked Securities, Multiple-Inverse ETFs, Currency Trust 
Shares, and Commodity Pool ETFs, together with the Exchange's 
surveillance procedures applicable to trading in the securities covered 
by the proposed rules, serve to foster investor protection.
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    \35\ 15 U.S.C. 78f(b).
    \36\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \37\ and Rule 19b-4(f)(6) 
thereunder.\38\
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    \37\ 15 U.S.C. 78s(b)(3)(A).
    \38\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and text of the proposed rule change, 
at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has fulfilled this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requests that the Commission waive 
the 30-day operative delay so that the Exchange can list and trade 
options on Index-Linked Securities, Index Multiple ETFs, Index Inverse 
ETFs, Currency Trust Shares, and Commodity Pool ETFs immediately. The 
Commission notes the proposal is substantively identical to rules of 
other exchanges that have been previously approved by the Commission 
and does not raise any new regulatory issues.\39\ In addition, the 
proposal would allow Nasdaq to list and trade products that currently 
trade on other options exchanges. The Commission believes that waiving 
the 30-day operative delay to permit the listing and trading of options 
on these products on an additional exchange as soon as possible is 
consistent with the protection of investors and the public 
interest.\40\ For these reasons, the Commission designates the proposed 
rule change as operative upon filing.
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    \39\ See e.g., NASDAQ OMX PHLX Rules 1009 and 1010; Chicago 
Board Options Exchange Rules 5.3 and 5.4, and International 
Securities Exchange Rules 502 and 503.
    \40\ For 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).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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:

[[Page 23907]]

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#bbc9ced7de96d8d4d6d6ded5cfc8fbc8ded895dcd4cd"><span class="__cf_email__" data-cfemail="a8daddc4cd85cbc7c5c5cdc6dcdbe8dbcdcb86cfc7de">[email protected]</span></a>. Please include 
File Number SR-NASDAQ-2009-046 on the subject line.

Paper Comments

    <bullet> 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-NASDAQ-2009-046. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the Nasdaq. 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-2009-046 and should 
be submitted on or before June 11, 2009.
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    \41\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-11807 Filed 5-20-09; 8:45 am]
BILLING CODE 8010-01-P


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