Document ID: SEC-2010-1066-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2010-07-13T04:00Z

[Federal Register: July 13, 2010 (Volume 75, Number 133)]
[Notices]               
[Page 40005-40007]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13jy10-126]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62463; File No. SR-CBOE-2010-043]

 
 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 Sprott Physical Gold Trust

July 7, 2010.
    On May 11, 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 
Sprott Physical Gold Trust (``Sprott Options''). The proposed rule 
change was published in the Federal Register on June 4, 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. 62193 (May 28, 
2010), 75 FR 31823.
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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\ the 
ETFS Palladium Trust and the ETFS Platinum Trust.\7\ Now, the

[[Page 40006]]

Exchange proposes to list and trade options on the Sprott Physical Gold 
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).
    \7\ See Securities Exchange Act Release No. 61892 (April 13, 
2010), 75 FR 20649 (April 20, 2010) (order approving SR-CBOE-2010-
015).
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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 the 
ETFS Palladium Trust or the ETFS Platinum 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.\8\ This rule change proposes to expand 
the types of ETFs that may be approved for options trading on the 
Exchange to include the Sprott Physical Gold Trust.
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    \8\ See Interpretation and Policy .06 to Rule 5.3.
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    Apart from allowing the Sprott Physical Gold Trust to be an 
underlying 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 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 Sprott Physical Gold 
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) In the case of Units listed pursuant to 
Interpretation and Policy .06(v)(E)(y) to Rule 5.3, following the 
initial twelve-month period beginning upon the commencement of trading 
of the Units, if there are fewer than 50 record and/or beneficial 
holders of the Units for 30 or more consecutive trading days; or (2) in 
the case of Units listed pursuant to Interpretation and Policy 
.06(v)(E)(x) to Rule 5.3, in accordance with the terms of paragraphs 
(a)-(d) of Interpretation and Policy .01 to Rule 5.4; or (3) 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 (4) such other event occurs or condition exists that in 
the opinion of the Exchange makes further dealing on the Exchange 
inadvisable.
    Additionally, the Sprott Physical Gold 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 Sprott Physical Gold Trust, if the Sprott Physical 
Gold Trust ceases to be an ``NMS stock'' as provided for in paragraph 
(f) of Interpretation and Policy .01 of Rule 5.4 or the Sprott Physical 
Gold Trust is halted from trading on its primary market.
    The addition of the Sprott Physical Gold Trust to Interpretation 
and Policy .06 to Rule 5.3 will not have any effect on the rules 
pertaining to position and exercise limits \9\ or margin.\10\
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    \9\ See CBOE Rules 4.11 and 4.12.
    \10\ See CBOE Rule 12.3.
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    The Exchange represents that its surveillance procedures applicable 
to trading in options on the Sprott Physical Gold 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 Sprott Physical Gold 
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 gold.

II. Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule change submitted by CBOE is

[[Page 40007]]

consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange 
\11\ and, in particular, the requirements of Section 6 of the Act.\12\ 
Specifically, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\13\ 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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    \11\ 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).
    \12\ 15 U.S.C. 78f.
    \13\ 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 \14\ 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 Sprott Options will also be subject to 
best execution obligations and FINRA rules.\15\ Applicable exchange 
rules also require that customers receive appropriate disclosure before 
trading Sprott Options.\16\ Further, brokers opening accounts and 
recommending options transactions must comply with relevant customer 
suitability standards.\17\
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    \14\ 15 U.S.C. 78f(b)(1).
    \15\ See NASD Rule 2320.
    \16\ See CBOE Rule 9.15.
    \17\ See FINRA Rule 2360(b) and CBOE Rules 9.7 and 9.9.
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    Sprott 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 Sprott Options available on other 
exchanges and, thereby, satisfy CBOE's obligation under the Options 
Order Protection and Locked/Crossed Market Plan.\18\ Series of the 
Sprott Options will be subject to exchange rules regarding continued 
listing requirements, including standards applicable to the underlying 
Sprott Physical Gold Trust. Shares of the Sprott Physical Gold Trust 
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.\19\ In 
addition, the underlying shares must continue to comply with the 
Exchange's continued listing standards applicable to Units.\20\ If the 
Sprott Physical Gold Trust shares fail to meet these requirements, the 
exchanges will not open for trading any new series of the respective 
Sprott Options.
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    \18\ See CBOE Rule 6.81. Specifically, CBOE is a participant in 
the Options Order Protection and Locked/Crossed Market Plan.
    \19\ 17 CFR 242.600.
    \20\ See Interpretation and Policy .08 to CBOE Rule 5.4.
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    CBOE has represented that it has surveillance programs in place for 
the listing and trading of Sprott 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, gold. Additionally, the listing and 
trading of Sprott Options will be subject to the exchange's rules 
pertaining to position and exercise limits \21\ and margin.\22\
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    \21\ See CBOE Rules 4.11 and 4.12.
    \22\ 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,\23\ that the propose rule change (SR-CBOE-2010-043) be, and is 
hereby, approved.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-16997 Filed 7-12-10; 8:45 am]
BILLING CODE 8010-01-P