Document ID: SEC-2007-0173-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2007-02-06T05:00Z

[Federal Register: February 6, 2007 (Volume 72, Number 24)]
[Notices]               
[Page 5467-5469]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06fe07-64]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55187; File No. SR-Amex-2006-110]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change Relating to Options Based on 
Commodity Pool ETFs

January 29, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on November 24, 2006, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by the 
Exchange. 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.
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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 certain rules to permit the listing 
and trading of options on equity interests issued by trust issued 
receipts (``Commodity TIRs''), partnership units, and other entities 
(referred herein to as ``Commodity Pool ETFs'') that hold or invest in 
commodity futures products.
    The text of the proposed rule change is available at the Amex, the 
Commission's Public Reference Room, and http://www.amex.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 Amex 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. The Amex has substantially 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 states that the purpose of the proposed rule change is 
to enable the listing and trading on the Exchange of options on 
interests in Commodity Pool ETFs that trade directly or indirectly 
commodity futures products. As a result, Commodity Pool ETFs are 
subject to the Commodity Exchange Act (``CEA'') due to their status as 
a commodity pool,\3\ and therefore, regulated by the Commodity Futures 
Trading Commission (``CFTC'').\4\ 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. Currently, Commentary .06 to 
Amex Rule 915 provides securities deemed appropriate for options 
trading shall include shares or other securities (``Exchange-Traded 
Fund Shares'') that are principally traded on a national securities 
exchange or through the facilities of a national securities association 
and reported as an NMS security, and that: (i) Represent an interest in 
a registered investment company organized as an open-end management 
investment company, a unit investment trust or a similar entity which 
holds securities constituting or otherwise based on or representing an 
investment in an index or portfolio of securities; or (ii) represent 
interest in a trust or other similar entity that holds a specified non-
U.S. currency deposited with the trust or similar entity 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 and pays the beneficial owner interest and other distributions 
on the deposited non-U.S. currency, if any, declared and paid by the 
trust.
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    \3\ 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).
    \4\ 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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    The Exchange proposes to amend Commentary .06 to Rule 915 to expand 
the type of options to include the listing and trading of options based 
on shares of Commodity Pool ETFs (the ``Shares'') that may hold or 
invest directly or indirectly in commodity futures products, including 
but not limited to, commodity futures contracts, options on commodity 
futures contracts, swaps,

[[Page 5468]]

and forward contracts. As part of this revision to Commentary .06 to 
Rule 915, the Exchange proposes to add paragraph (a)(v) requiring for 
Commodity Pool ETFs that a comprehensive surveillance sharing agreement 
be in place 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.
    As set forth in proposed amended Commentary .06 to Rule 915, 
Commodity Pool ETFs must be traded on a national securities exchange or 
through the facilities of a national securities association and must be 
an ``NMS stock'' as defined under Rule 600 of Regulation NMS. In 
addition, shares of Commodity Pool ETFs must meet either: (i) The 
criteria and guidelines under Commentary .01 to Rule 915; or (ii) be 
available for creation or redemption each business day in cash or in 
kind from the commodity pool, trust, or similar entity at a price 
related to net asset value. In addition, the commodity pool, trust or 
other similar entity shall provide that shares may be created even 
though some or all of the securities needed to be deposited have not 
been received by the commodity pool, trust or other similar entity, 
provided the authorized creation participant has undertaken to deliver 
the shares 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 commodity pool, trust, or other similar 
entity which underlies the option as described in the prospectus.
    Under the applicable continued listing criteria in Commentary .07 
to Amex Rule 916, the Shares may be subject to delisting as follows: 
(1) Following the initial twelve-month period beginning upon the 
commencement of trading of the Shares, there are fewer than 50 record 
and/or beneficial holders of the Shares for 30 or more consecutive 
trading days; (2) the value of the index, non-U.S. currency, portfolio 
of commodities including commodity futures contracts, options on 
commodity futures contracts, swaps, forward contracts and/or options on 
physical commodities, or portfolio of securities on which the Shares 
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. Additionally, the Shares 
shall not be deemed to meet the requirements for continued approval, 
and the Exchange shall not open for trading any additional series of 
option contracts of the class covering such Shares, if the Shares are 
halted from trading on their primary market, or if the Shares are 
delisted in accordance with the terms of Amex Rule 916, or the value of 
the index or portfolio on which the Shares are based is no longer 
calculated or available.
    The Exchange is also proposing to amend Amex Rule 3 to require 
members to establish, maintain, and enforce written policies and 
procedures to prevent the misuse of material nonpublic information it 
might have or receive in a related security, option or derivative or in 
the applicable related commodity, commodity futures or options on 
commodity futures, or any other related commodity derivatives. The 
Exchange further proposes to amend Amex Rule 957 to ensure that the 
specialist and Registered Traders handling the Shares provide the 
Exchange with all necessary information relating to their trading in 
the applicable, physical commodities, physical commodity options, 
commodity futures contracts, options on commodity futures contracts, 
any other derivatives based on such commodity. In addition, the 
revision to Rule 957 will prohibit a specialist or Registered Trader 
engaging in physical commodities, physical commodity options, commodity 
futures contracts, options on commodity futures contracts, any other 
derivatives based on such commodity from trading in an account which 
has not been reported to the Exchange.
    The Exchange represents that it has an adequate surveillance 
program in place for options based on Commodity Pool ETFs. The Exchange 
may obtain trading information via the Intermarket Surveillance Group 
(``ISG'') from other exchanges who are members or affiliates of the ISG 
and has entered into numerous comprehensive surveillance sharing 
agreements with various commodity futures exchanges worldwide. Prior to 
listing and trading options on Commodity Pool ETFs, the Exchange 
represents that it will either have the ability to obtain specific 
trading information via ISG or through a comprehensive surveillance 
sharing agreement with the exchange or exchanges where the particular 
commodity futures and/or options on commodity futures are traded.
    The addition of Commodity Pool ETF options will not have any effect 
on the rules pertaining to position and exercise limits \5\ or 
margin.\6\
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    \5\ See Amex Rules 904 and 905.
    \6\ See Amex Rule 462.
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    This proposal is necessary to enable the Exchange to list and trade 
options on an expanding range of Commodity Pool ETFs currently approved 
for trading. The Exchange notes that The DB Commodity Index Tracking 
Fund (the ``DBC Fund''), the United States Oil Fund, L.P. (the ``Oil 
Fund''), and the PowerShares DB G10 Currency Harvest Fund (the ``DBV 
Fund'') are listed and traded on the Amex.\7\ The DBC Fund is a 
Commodity TIR and tracks the performance of the Deutsche Bank Liquid 
Commodity IndexTM--Excess Return, while the Oil Fund is a 
Partnership Unit and tracks the spot price of West Texas Intermediate 
light, sweet crude oil delivered to Cushing, Oklahoma.
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    \7\ See Securities Exchange Act Release Nos. 53105 (January 11, 
2006), 71 FR 3129 (January 19, 2006) (SR-Amex-2005-059) (approving 
the listing and trading of the DB Commodity Index Tracking Fund); 
53582 (March 31, 2006), 71 FR 17510 (April 6, 2006) (SR-Amex-2005-
127) (approving the listing and trading of Units of the United 
States Oil Fund, L.P.); and 54450 (September 14, 2006), 71 FR 55230 
(September 21, 2006) (SR-Amex-2006-44) (approving the listing and 
trading of the PowerShares DB G10 Currency Harvest Fund).
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    The DBC Fund is a ``feeder fund'' that invests substantially all of 
its assets in the DB Commodity Index Tracking Master Fund, and the 
Master Fund in turn maintains a portfolio of exchange-traded futures on 
aluminum, gold, corn, wheat, heating oil and light, sweet crude oil. 
The Index is derived from the prices of those futures contracts. The 
Master Fund's portfolio is managed on an ongoing basis by DB Commodity 
Services LLC, a registered CPO and CTA, so that the value of the 
portfolio closely tracks the value of the Index over time.
    The DBV Fund is a ``feeder fund'' that invests substantially all of 
its assets in the PowerShares DB G10 Currency Harvest Master Fund, and 
the Master Fund in turn maintains a portfolio of exchange-traded 
futures on foreign currencies that comprise the G-10 countries. The 
Index is derived from the prices of those futures contracts. The Master 
Fund's portfolio is managed on an ongoing basis by DB Commodity 
Services LLC, a registered CPO and CTA, so that the value of the 
portfolio closely tracks the value of the Index over time.
    Unlike the DBC and DBV Funds, the Oil Fund does not invest through 
a master-feeder structure but rather trades directly in futures on 
crude and heating oil, natural gas, gasoline and other petroleum-based 
fuels, options on such

[[Page 5469]]

futures contracts, forward contracts on oil and other over-the-counter 
derivatives based on the price of oil, other petroleum-based fuels, the 
futures contracts described above, and the indexes based on any of the 
foregoing. The Oil Fund's portfolio is managed by Victoria Bay Asset 
Management LLC with the aim of tracking the West Texas Intermediate 
light, sweet crude oil futures contract listed and traded on the New 
York Mercantile Exchange.
    The Amex believes that it is reasonable to expect other types of 
Commodity Pool ETFs to be introduced for trading in the near future. 
The Exchange states that the proposed amendment to the Exchange's 
listing criteria for options on Commodity TIRs and Partnership Units is 
necessary to ensure that the Exchange will be able to list options on 
Commodity Pool ETFs that have been recently launched as well as any 
other similar Commodity Pool ETFs that may be listed and traded in the 
future.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of Section 6(b) of the Act \8\ in general, and 
furthers the objectives of Section 6(b)(5),\9\ of the Act in 
particular, in that it would remove impediments to and perfect the 
mechanism of a free and open market in a manner consistent with the 
protection of investors and the public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 will 
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 states that no written comments were solicited or 
received with respect to the proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve such proposed rule change or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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 Exchange 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-Amex-2006-110 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-Amex-2006-110. 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. Copies of the filing 
also will be available for inspection and copying at the principal 
office of the Amex. 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-Amex-2006-110 and should be submitted on or before February 27, 
2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-1827 Filed 3-5-07; 8:45 am]

BILLING CODE 8011-01-P