Document ID: SEC-2010-0585-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2010-04-20T04:00Z

[Federal Register: April 20, 2010 (Volume 75, Number 75)]
[Notices]               
[Page 20649-20651]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20ap10-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61892; File No. SR-CBOE-2010-015)

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Granting Approval of Proposed Rule Change To Enable 
the Listing and Trading of Options on the ETFS Palladium Trust and the 
ETFS Platinum Trust

April 13, 2010.
    On February 8, 2010, the Chicago Board Options Exchange, 
Incorporated (``CBOE'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade options on the 
ETFS Palladium Trust and the ETFS Platinum Trust (collectively ``ETFS 
Options''). The proposed rule change was published in the Federal 
Register on March 12, 2010.\3\ The Commission received no comments on 
the proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 61663 (March 5, 
2010), 75 FR 11955.
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I. Description of Proposal

    Recently, the Commission authorized CBOE to list and trade options 
on the SPDR Gold Trust,\4\ the iShares COMEX Gold Trust, the iShares 
Silver Trust,\5\ the ETFS Silver Trust and the ETFS Gold Trust.\6\ Now, 
the Exchange proposes to list and trade options on the ETFS Palladium 
Trust and the ETFS Platinum Trust.
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    \4\ See Securities Exchange Act Release No. 57897 (May 30, 
2008), 73 FR 32061 (June 5, 2008) (order approving SR-CBOE-2005-11).
    \5\ See Securities Exchange Act Release No. 59055 (December 4, 
2008), 73 FR 75148 (December 10, 2008) (order approving SR-CBOE-
2008-72).
    \6\ See Securities Exchange Act Release No. 61483 (February 3, 
2010), 75 FR 6753 (February 10, 2010) (order approving SR-CBOE-2010-
007).
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    Under current Rule 5.3, only Units (also referred to herein as 
exchange traded fund (``ETFs'')) representing (i) interests in 
registered investment companies (or series thereof) organized as open-
end management investment companies, unit investment trusts or similar 
entities that hold portfolios of securities and/or financial 
instruments including, but not limited to, 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 purchase agreements (the ``Financial 
Instruments''), and money market instruments, including, but not 
limited to, U.S. government securities and repurchase agreements (the 
``Money Market Instruments'') comprising or otherwise based on or 
representing investments in indexes or portfolios of securities and/or 
Financial Instruments and Money Market Instruments (or that hold 
securities in one or more other registered investment companies that 
themselves hold such portfolios of securities and/or Financial 
Instruments and Money Market Instruments), or (ii) interests in a trust 
or 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 deposited non-U.S. currency, 
if any, declared and paid by the trust, or (iii) 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 Units''), or (iv) represent interests in the 
streetTRACKS Gold Trust or the iShares COMEX Gold Trust or the iShares 
Silver Trust or the ETFS Silver Trust or the ETFS Gold Trust, or (v) 
represents an interest in a registered investment company (``Investment 
Company'') organized as an open-end management investment company or 
similar entity, that invests in a portfolio of securities selected by 
the Investment Company's investment adviser consistent with the 
Investment Company's investment objectives and policies, which is 
issued in a specified aggregate minimum number in return for a deposit 
of a specified portfolio of securities and/or a cash amount with a 
value equal to the next determined net asset value (``NAV''), and when 
aggregated in the same specified minimum number, may be redeemed at a 
holder's request, which holder will be paid a specified portfolio of 
securities and/or cash with a value equal to the next determined NAV 
(``Managed Fund Share'') are eligible as underlying securities for 
options traded on the Exchange.\7\ This rule change proposes to expand 
the types of ETFs that may be approved for options trading on the 
Exchange to include the ETFS Palladium Trust and the ETFS Platinum 
Trust.
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    \7\ See Interpretation and Policy .06 to CBOE Rule 5.3.
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    Apart from allowing the ETFS Palladium Trust and the ETFS Platinum 
Trust to be an underlying security for options traded on the Exchange 
as described above, the listing standards for ETFs will remain 
unchanged from those that apply under current Exchange rules. ETFs on 
which options may be listed and traded must still be listed and traded 
on a national securities exchange and must satisfy the other listing 
standards set forth in Interpretation and Policy .06 to Rule 5.3.
    Specifically, in addition to satisfying the aforementioned listing 
requirements, Units must meet either: (1) The criteria and guidelines 
under Rule 5.3 and Interpretation and Policy .01 to Rule 5.3, Criteria 
for Underlying Securities; or (2) they must be available for creation 
or redemption each business day from or through the issuer

[[Page 20650]]

in cash or in kind at a price related to net asset value, and the 
issuer must be obligated to issue Units in a specified aggregate number 
even if some or all of the investment assets required to be deposited 
have not been received by the issuer, subject to the condition that the 
person obligated to deposit the investments has undertaken to deliver 
the investment assets as soon as possible and such undertaking is 
secured by the delivery and maintenance of collateral consisting of 
cash or cash equivalents satisfactory to the issuer, as provided in the 
respective prospectus.
    The Exchange states that the current continued listing standards 
for options on ETFs will apply to options on the ETFS Palladium Trust 
and the ETFS Platinum Trust. Specifically, under Interpretation and 
Policy .08 to Rule 5.4, options on Units 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 Units, there are fewer than 50 record and/or beneficial holders 
of the Units 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 Units 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 ETFS Palladium Trust and the ETFS Platinum Trust 
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 the ETFS Palladium Trust and the 
ETFS Platinum Trust, if the ETFS Palladium Trust and the ETFS Platinum 
Trust ceases to be an ``NMS stock'' as provided for in paragraph (f) of 
Interpretation and Policy .01 of Rule 5.4 or the ETFS Palladium Trust 
and the ETFS Platinum Trust is halted from trading on its primary 
market.
    The addition of the ETFS Palladium Trust and the ETFS Platinum 
Trust to Interpretation and Policy .06 to Rule 5.3 will not have any 
effect on the rules pertaining to position and exercise limits \8\ or 
margin.\9\
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    \8\ See CBOE Rules 4.11 and 4.12.
    \9\ See CBOE Rule 12.3.
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    The Exchange represents that its surveillance procedures applicable 
to trading in options on the ETFS Palladium Trust and the ETFS Platinum 
Trust will be similar to those applicable to all other options on other 
Units currently traded on the Exchange. The Exchange represents that 
its surveillance procedures applicable to trading in options on the 
ETFS Palladium Trust and the ETFS Platinum Trust will be similar to 
those applicable to all other options on other ETFs currently traded on 
the Exchange. Also, the Exchange may obtain information from the New 
York Mercantile Exchange, Inc. (``NYMEX'') (a member of the Intermarket 
Surveillance Group) related to any financial instrument that is based, 
in whole or in part, upon an interest in or performance of palladium or 
platinum.

II. Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule change submitted by CBOE is consistent with the requirements of 
the Act and the rules and regulations thereunder applicable to a 
national securities exchange \10\ and, in particular, the requirements 
of Section 6 of the Act.\11\ Specifically, the Commission finds that 
the proposal is consistent with Section 6(b)(5) of the Act,\12\ which 
requires, among other things, that the rules of a national securities 
exchange be designed 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 accordance with the 
Memorandum of Understanding entered into between the Commodity Futures 
Trading Commission (``CFTC'') and the Commission on March 11, 2008, and 
in particular the addendum thereto concerning Principles Governing the 
Review of Novel Derivative Products, the Commission believes that novel 
derivative products that implicate areas of overlapping regulatory 
concern should be permitted to trade in either or both a CFTC- or 
Commission-regulated environment, in a manner consistent with laws and 
regulations (including the appropriate use of all available exemptive 
and interpretive authority).
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    \10\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(5).
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    As a national securities exchange, the CBOE is required under 
Section 6(b)(1) of the Act \13\ to enforce compliance by its members, 
and persons associated with its members, with the provisions of the 
Act, Commission rules and regulations thereunder, and its own rules. In 
addition, brokers that trade ETFS Options will also be subject to best 
execution obligations and FINRA rules.\14\ Applicable exchange rules 
also require that customers receive appropriate disclosure before 
trading ETFS Options.\15\ Further, brokers opening accounts and 
recommending options transactions must comply with relevant customer 
suitability standards.\16\
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    \13\ 15 U.S.C. 78f(b)(1).
    \14\ See NASD Rule 2320.
    \15\ See CBOE Rule 9.15.
    \16\ See FINRA Rule 2360(b) and CBOE Rules 9.7 and 9.9.
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    ETFS Options will trade as options under the trading rules of the 
CBOE. These rules, among other things, are designed to avoid trading 
through better displayed prices for ETFS Options available on other 
exchanges and, thereby, satisfy CBOE's obligation under the Options 
Order Protection and Locked/Crossed Market Plan.\17\ Series of the ETFS 
Options will be subject to exchange rules regarding continued listing 
requirements, including standards applicable to the underlying ETFS 
Silver and ETF Gold Trusts. Shares of the ETFS Silver and ETFS Gold 
Trusts must continue to be traded through a national securities 
exchange or through the facilities of a national securities 
association, and must be ``NMS stock'' as defined under Rule 600 of 
Regulation NMS.\18\ In addition, the underlying shares must continue to 
be available for creation or redemption each business day from or 
through the issuer in cash or in kind at a price related to net asset 
value.\19\ If the ETFS Silver or ETFS Gold Trust shares fail to meet 
these requirements, the exchanges will not open for trading any new 
series of the respective ETFS Options.
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    \17\ See CBOE Rule 6.81. Specifically, CBOE is a participant in 
the Options Order Protection and Locked/Crossed Market Plan.
    \18\ 17 CFR 242.600.
    \19\ See Interpretation and Policy .06 to CBOE Rule 5.3.
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    CBOE has represented that it has surveillance programs in place for 
the listing and trading of ETFS Options. For example, CBOE may obtain 
trading information via the ISG from the NYMEX related to any financial 
instrument traded there that is based, in whole or in part, upon an 
interest in, or performance of, palladium or platinum. Additionally, 
the listing and trading of ETFS Options will be subject to the

[[Page 20651]]

exchange's rules pertaining to position and exercise limits \20\ and 
margin.\21\
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    \20\ See CBOE Rules 4.11 and 4.12.
    \21\ See CBOE Rule 12.3. See also FINRA Rule 2360(b) and 
Commentary .01 to FINRA Rule 2360.
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III. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the propose rule change (SR-CBOE-2010-015) be, and is 
hereby, approved.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-9032 Filed 4-19-10; 8:45 am]
BILLING CODE 8011-01-P