Document ID: SEC-2008-0628-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2008-04-30T04:00Z

[Federal Register: April 30, 2008 (Volume 73, Number 84)]
[Notices]               
[Page 23518-23521]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30ap08-139]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57715; File No. SR-Phlx-2008-30]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to the Criteria for Securities That Underlie Options Traded on 
the Exchange

April 25, 2008.
    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 April 24, 2008, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
The Exchange filed the proposal 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

    The Exchange proposes to amend Phlx Rule 1009, Criteria for 
Underlying Securities, and Phlx Rule 1010, Withdrawal of Approval of 
Underlying Securities or Options, to permit the initial and continued 
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''), and the listing and trading of options 
on shares of certain funds or trusts that hold specified non-U.S. 
currencies.
    The text of the proposed rule change is available at the Exchange's 
principal office, the Commission's Public Reference Room, and http://
www.phlx.com.

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. Phlx 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
    An Index Multiple ETF seeks 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. An Index Inverse ETF seeks 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 or ``Units'' in that they do

[[Page 23519]]

not merely correspond to the performance of a given index, but rather 
attempt to match a multiple or inverse of such underlying index 
performance. The ProShares Ultra Funds, which currently trade on the 
American Stock Exchange (``Amex''), are examples of Index Multiple 
ETFs. The ProShares Short Funds and the UltraShort Funds, which are 
also currently listed for trading on Amex, are examples of Index 
Inverse ETFs.\5\
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    \5\ 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. 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).
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    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 (collectively ``Financial 
Instruments''). The underlying portfolio of an Index Multiple ETF 
generally will hold at least 85% of its assets in the component 
securities of the underlying relevant benchmark index. The remainder is 
devoted to Financial Instruments that are intended to create the 
additional exposure to the underlying index necessary to pursue its 
investment objective. Normally, 100% of the value of the portfolio 
underlying an Index Inverse ETF will be devoted to Financial 
Instruments and money market instruments, including U.S. government 
securities and repurchase agreements (``Money Market Instruments'').
Initial Listing Standards
    Currently, Commentary .06 to Phlx Rule 1009 provides that 
securities deemed appropriate for options trading shall include shares 
or other securities (``Exchange-Traded Fund Shares'' or ``ETFs'') that 
are traded on a national securities exchange or through the facilities 
of a national securities association and reported as a national market 
security, and that: (1) Represent interests in a registered investment 
company organized as an open-end management investment company, a unit 
investment trust, or a similar entity that holds securities 
constituting or otherwise based on or representing investments in index 
or portfolio of securities; or (2) 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 
(``Commodity Pool ETFs'').
    The Exchange proposes to amend Commentary .06 to Phlx Rule 1009 to 
include the listing and trading of options 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. 
Index Multiple ETFs and Index Inverse ETFs must continue to otherwise 
satisfy the listing standards in Phlx Rule 1010. In addition, the 
Exchange proposes to make non-substantive, technical changes to 
Commentary .06 such as, for example, removal of the reference to a 
``national securities association'' to conform Phlx's rule to other 
options exchange rules.
    The Exchange also proposes to modify Commentary .06 regarding 
interests in a fund or trust that holds a specified non-U.S. currency 
or currencies, and surveillance agreements in respect thereof, by 
conforming this part of the commentary to the rules of Amex, Chicago 
Board Options Exchange (``CBOE''), International Securities Exchange 
(``ISE''), and NYSE Arca.\6\ Thus, Phlx proposes to amend its 
Commentary .06 at (iii) to expand the options that may be listed on the 
Exchange to include options on a fund (trust) that represents an 
interest in a trust or other similar entity that holds specified non-
U.S. currency or currencies deposited with the trust or similar entity 
(``Fund''). The Exchange is also proposing to require in Commentary .06 
at (b)(v) that, for any Fund that holds 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 Fund is listed and traded.
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    \6\ See Commentary .06(ii) and (b)(iv) to Amex Rule 915; 
Interpretation and Policy .06(ii) and (D) to CBOE Rule 5.3; ISE Rule 
502(h)(ii) and (h)(B)(4); NYSE Arca Rule 5.3(g). The Exchange notes 
that these rules are substantially similar to the rules being 
proposed by the Exchange in this filing.
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    As set forth in proposed amended Commentary .06 to Phlx Rule 1009, 
an underlying Index Multiple ETF, Index Inverse ETF, or Fund must be 
traded on a national securities exchange and must be an ``NMS stock'' 
as defined under Rule 600 of Regulation NMS. In addition, an Index 
Multiple ETF, Index Inverse ETF, or Fund must meet either: (1) The 
criteria and guidelines under Commentary .01 to Phlx Rule 1009; or (2) 
be available for creation or redemption each business day in cash or in 
kind from the investment company, commodity pool, 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.
Continued Listing Standards
    The Exchange states that its current continuing listing standards 
for options in its Rule 1010 will continue to apply.
    The Exchange proposes to amend Commentary .08 to Phlx Rule 1010 to 
indicate that the index or portfolio underlying the ETF or fund on 
which an option is based may consist of various securities, Financial 
Instruments, and/or Money Market Instruments. The Exchange also seeks 
to delete the reference to ``national securities association.'' Under 
the applicable continued listing criteria in Commentary .08 to Phlx 
Rule 1010, options on ETFs may be subject to the suspension of opening 
transactions as follows: (1) Following the initial 12-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

[[Page 23520]]

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 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 on the Exchange inadvisable.\7\ Additionally, the 
Exchange proposes to clarify that the relevant instruments have to be 
an ``NMS stock'' under Rule 600 of Regulation NMS.
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    \7\ 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 Commentary .11 to 
Phlx Rule 1010.
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    The expansion of the types of investments that may be held by Index 
Multiple ETFs, Index Inverse ETFs, or Funds under Commentary .06 to 
Rule 1009 will not have any effect on the rules pertaining to position 
and exercise limits or margin.\8\
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    \8\ See Phlx Rule 1001, Position Limits; Phlx Rule 1002, 
Exercise Limits; Phlx Rule 722, Margin Limits.
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    The Exchange believes that this proposal is necessary to enable the 
Exchange to list and trade options on the shares of the Ultra Fund, 
Short Fund, and UltraShort Fund of the ProShares Trust. The proposed 
amendment is also necessary to enable the Exchange 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 
would provide investors with greater risk management tools.
    The Exchange represents that its existing surveillance procedures 
applicable to trading in options are adequate to properly monitor the 
trading in Index Multiple ETF options and Index Inverse ETF options and 
the trading of options on Funds that hold a specified non-U.S. currency 
or currencies.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\10\ 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 to protect investors and the 
public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose 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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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 after the date of 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 \11\ and subparagraph (f)(6) 
of Rule 19b-4 thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). The Exchange has satisfied the 
five-day pre-filing requirement of Rule 19b-4(f)(6)(iii).
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    The Exchange has requested that the Commission waive the 30-day 
operative delay and designate the proposed rule change as operative 
upon filing. The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. The proposed rule change is substantially similar to those of 
other options exchanges that have been previously approved by the 
Commission \13\ and does not appear to present any novel regulatory 
issues. Therefore, the Commission designates the proposal operative 
upon filing.\14\
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    \13\ See Securities Exchange Act Release Nos. 54983 (December 
20, 2006), 71 FR 78476 (December 29, 2006) (Amex-2006-87); 56715 
(October 29, 2007), 72 FR 62287 (November 2, 2007) (SR-CBOE-2007-
119); 56871 (November 30, 2007), 72 FR 68924 (December 6, 2007) (SR-
ISE-2007-87); and 57226 (January 29. 2008), 73 FR 6762 (February 5, 
2008) (SR-NYSEArca-2008-03).
    \14\ For purposes only of waiving the operative delay of this 
proposal, the Commission has 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 the furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2008-30 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-Phlx-2008-30. 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 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-2008-30 and should be 
submitted on or before May 21, 2008.

[[Page 23521]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-9469 Filed 4-29-08; 8:45 am]

BILLING CODE 8010-01-P